Five Things Banks Won’t Tell You
1. Your Fixed Rate is Expiring
As a Geelong mortgage broker, I frequently see customers who have taken out a fixed rate in the last 2-5 years. When the fixed rate expires the loan product reverts to a standard variable rate, which is generally well above market pricing. As a broker I always encourage my clients to undergo a home loan health check when their fixed rate expires. This gives my clients the option of staying with the same lender but switching to a product with a lower interest rate, or alternatively looking at other loan products with different lenders.
2. Our Competition Has a More Competitive Product
If customers visit their local branch for a home loan, or alternatively search on line, they are able to see a lender’s products. This will generally include a basic variable and professional package and various fixed rates. Often the customer will be able to see a breakdown of different loan products, different interests rates and possibly the application fees for the lender they are currently looking at. However, what no single lender is able to do is compare the different types of loans, of different lenders side my side. This is one of the benefits of seeing a broker. What this means is that if there is a more suitable loan for you out there, the lender you are currently with will not tell you, as they are most likely not aware of it.
3. How to Structure an Investment Loan
As a mortgage broker in Geelong, I have written numerous investment loans. Although it can vary depending on a client’s individual situation, an investment loan will quite possibly involve borrowing 100% of the purchase price plus costs. Eighty percent of this will be secured against the investment property with the balance quite possibly secured against the owner occupied home, provided there is enough equity. This can be done as two separate loans, which has a couple of benefits. Firstly, exposure against the owner occupied home is limited, as only 20% plus costs is secured against it. Secondly, as they are two different loans, each loan can be placed with a different lender, depending on which lender is most competitive.
Alternatively, if the same investment mortgage is written by a lending specialist for a bank the loan will generally be done as a single loan and secured against both the owner occupied and investment property. As a consequence liability against the owner occupied house is not limited and of course all borrowing will need to be done through the one lender, who may not be offering the most competitive rate.
4. The Truth about Standard Variable Rates (SVR)
A standard variable rate is exactly what it sounds like a ‘standard’ rate. They key thing to note is that most lenders then go on to discount the rate, by anywhere from .5 to 1.2%. So what is relevant here is both points: 1. What the standard variable rate is, and 2. (and equally important) How much the rate is discounted by? It is not uncommon to see mortgage advertisements where a lender may state that their standard variable is lower than the other lenders. While this is a catchy advertisement, it is not entirely relevant unless you understand lenders will also discount the standard variable and can then question the extent to which the SVR rate has been discounted.
5. The Truth about Pro Packs
Pro Packs, also know as Professional Packs involve a standard variable rate, which has been discounted by somewhere in the vicinity of .5-1.2%, plus also include a credit card with no annual fee, and a savings/offset account also with no fees, however, they will generally come with an annual fee of approximately $500. Mortgage customers who walk into a branch will generally be sold one of these loan products, for the simple reason that the lender has now managed to capture most, if not all of that customers banking and thereby making it difficult for them to move banks.
As a mortgage broker in Geelong I encourage my customers to look at what they are getting for their money. Do they need a savings account and a credit card? How much has the SVR been discounted? Is there a basic variable, without the annual fee and without the credit card and offset account with a similar interest rate? Whilst Pro Packs can have some enticing interest rate discounts it’s also important to make sure customers are getting value for money for any fees they may be paying.
I hope these points are informative and give you a good foundation for better understanding your home loan. And of course, always consider using a broker.