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Tuesday, February 17 2015

1. Lenders want you to fix your loan

Lenders offer fixed rates for one reason only – to stop you from leaving. They are purely a retention strategy.  To break a fixed loan can be incredibly expensive and lenders know that in 99% cases this break cost will stop you from leaving.

Most fixed rate loans also stop you paying off the loan too quickly. So even if you secure a good rate you can only pay a minimal amount extra which could in fact see you paying more interest than if you had simply stayed on a variable rate.

Lenders pay big money to interest rate strategists to work out where rates are heading and where the cycles are. Fixed rates are designed to make you pay a higher cost of funds than if you actually stayed on variable.

Your chances of winning the bet are very low. If you don’t believe me have a look the Big 4’s combined net profit.

2. It’s not all about the rate
Lenders know most borrowers focus on the interest rates and pay little attention to all the other costs of the loan. However when you add up establishment fees, valuations fees, legals, ongoing fees, mortgage insurance, renegotiation fees etc suddenly that low rate is no so low anymore.

The biggest growth in lender income is via fees.

3. Lenders look after new customers better than their loyal clients
To attract new business lenders often offer significantly discounted rates (0.25 – 0.5% less) for the exact same loan that their existing clients have.  You might have banked with them for 10 or 20 years never missed a payment but they won’t offer you that rate.

Which is why it is always worth reviewing your lending on a regular basis.

4. Pre-approvals are worthless
Lenders hand out pre-approvals like lollipops but they aren’t worth the piece of paper they are written on. Most pre-approvals do not involve a detailed analysis of your financial information and full verification of your documentation. In many cases they are done over the phone or via email based purely on a few questions.

And don’t even get me started on online loan calculators.

What your income is and what a lender is prepared to use to assess your capacity are two different things.

I think the approach most lenders take is when someone makes an initial enquiry they just say “yes”. That way there is a strong likelihood that person will come back to them for their loan if they sign a contract. If the loan is declined or then approved on ales favourable terms than what they first advised it’s no skin off their nose as you are just another number and they move on to the next deal.  

5. Lenders want you to cross-securitise
As with fixed rates lenders know if they tie up all your property it’s going to make it very hard to ever leave. This is particularly an issue for property investors with a portfolio. Each time you add a property it gets added to the mix. It’s very hard to unscramble an egg.

Unfortunately most people are apathetic and continue to pay thousands of dollars each year more than they need to.

6. Valuers dictate the market
It doesn’t matter what you think your property is worth, or the bank. The only person that matters is the valuer. It is now fairly common to see properties come in below contract price or well below owners expectations if they are refinancing. And even if you can provide supporting sales evidence it is unlikely that will change their minds.

Many lenders acknowledge privately that valuers can underscore properties and be inconsistent in their valuation methods but no one seems to be prepared to do anything about it.

7. They know most people are apathetic
Lenders know most of their clients will do nothing about their loan and continue on in the wrong loan product at a higher cost for years. They know most won’t obtain advice from a finance expert who can assess their position and provide some alternative options to their current situation and most likely save them thousands of not tens of thousands of dollars. 

At MTA Finance we provide clients with a realistic appraisal of their options based on their specific circumstances, and ensure that the structure that is put in place is designed to benefit them and not the banks.

Contact us for an initial chat to discuss your home loan requirements

Posted by: Greg Carroll AT 12:38 am   |  Permalink   |  Email