Independent advice on home loans: cost and when it pays off

There are two kinds of adviser for your home loan, and they are not working towards the same goal. The difference between a bank adviser and an independent adviser comes down to who pays for the advice, and which loans are put on the table. A bank adviser is employed by the bank and advises within the bank’s own product range, so the recommendations are often limited to the loans the bank itself offers. An independent adviser has no ties to any particular bank and can therefore compare offers and terms from several mortgage lenders (realkreditinstitutter) and banks.

That difference matters in practice. When you choose independent advice on your home loan, you pay the fee directly, and the adviser receives no commission from a lender for recommending a particular product. In other words, the advice is not steered in any particular direction. With both perspectives, you can decide on your home loan based on the whole market rather than just one institution’s range.

What does an independent adviser cost?

The price of independent advice is not always a fixed rate you can look up in a price list. The fee is usually agreed as a fixed amount or an hourly rate, and you are told the price before the advice begins. That way, you can decide whether the job is worth the money before you commit.

The price depends on the size of the job. If you just want your current loan checked, the job is limited and rarely takes long. If you need full advice on refinancing, where quotes have to be obtained, contribution rates (bidragssatser) calculated and loan terms assessed, the time spent grows, and so does the price.

The bill looks the way it does because the fee does not depend on which loan you end up with. The adviser has no financial interest in pointing you in a particular direction. You pay for the work, not for a particular product, so the price is visible instead of being built into a mark-up on the bond price or the interest rate.

Pricing models vary from adviser to adviser. Some independent advisers charge a fixed fee for a complete review of your loan, contribution fees and refinancing options, so you know in advance what the whole package costs. Others bill by the hour, so the bill follows the hours the job requires.

The two models can be compared side by side:

• A fixed fee gives you a predictable price, but usually only covers the agreed job.

• An hourly rate gives you the flexibility to buy exactly the advice you need, but the total bill depends on how long the work takes.

How the adviser reviews your choice of loan, contribution fees and refinancing

An independent adviser starts with you and your finances rather than looking at the market first. The adviser goes through the areas where the money and the risk lie.

1. The adviser first looks at your current loan terms – that is, the outstanding debt, interest rate, term and any fees – to establish your starting point.

2. Next, relevant loan types are compared, such as fixed-rate loans and variable-rate loans like F-kort, F3 or F5, with a focus on the total monthly payment and the financial risk.

3. The contribution rate is reviewed in detail, because the ongoing payment to the mortgage lender can vary between lenders and loan types and therefore affect the total cost.

4. When refinancing, the adviser assesses both converting up and converting down (op- og nedkonvertering), including the effect on outstanding debt, payments and break-even, so you know when refinancing your loan pays off.

You pay for concrete answers, not for a theoretical analysis. You find out whether your current loan is the right one for you, and whether there is money to be saved by refinancing it.

When is an independent adviser worth it?

If the annual saving on interest and contribution fees is greater than the adviser’s fee, the advice has paid for itself within the first year. That is the first calculation you should do. It needs two figures: what the advice costs, and what you really save each year after costs and tax.

A fee of a few thousand kroner should be weighed against a saving that typically comes round again every year.

Even a small difference in contribution rate or interest rate can exceed the fee over several years, because home loans run for a long time. A contribution rate that is slightly lower at another lender, or an interest rate that is just a touch better, may look modest in a single year. Add up the difference over ten, fifteen or thirty years and the picture changes, even though the annual saving shrinks a little as you pay off the loan.

Over several years, the fee therefore often becomes a relatively small item in the overall calculation.

With refinancing, however, there is an important nuance. Look at both the lower payment and the change in outstanding debt, and calculate the saving after costs and tax. Refinancing can lower your monthly payment while increasing your outstanding debt. If you only look at the payment, you may end up celebrating a saving that is actually borrowed.

When you weigh the saving from refinancing against the fee, it is the overall result that counts. Deduct the costs of refinancing, take tax into account, and look at what is really left. Only then do you know whether the difference between the two loans is big enough to cover the adviser’s work.

A specific calculation from an independent adviser gives you an estimate of when the advice will have paid for itself, that is, the point at which the total saving has caught up with the fee. From that point on, the rest of the saving is yours.

How to make active use of the difference between a bank adviser and an independent adviser

You get the most out of the difference when you use it in the advice meeting itself. It takes a little preparation and a few questions along the way.

• Get hold of your loan agreement or loan offer and your latest annual statement before you meet an adviser, so the review is based on your actual figures rather than being general.

• Ask the bank adviser whether the recommended loan is also the cheapest on the market, or whether similar loans with lower contribution fees are available elsewhere.

• Let an independent adviser use the same documents for an independent comparison that shows where your current bank stands against its competitors.

• Bear in mind that a meeting with an independent adviser typically covers all your finances relating to your home, not just the loan the bank itself offers.

How to move forward

An independent review helps you see whether your current loan is competitive, or whether refinancing could bring a lasting saving. Advice is worth paying for when the saving exceeds the fee, and you can only decide that once someone has crunched the numbers for your situation.

If you are buying a home and want a loan offer to compare with your bank’s, Brikk can put you in touch with a lender free of charge. Brikk does not provide independent advice itself, so see the offer as one of several you can compare.