Q. I’ve heard people say that it’s best to use one lender for all of your properties, as you can build a close relationship with the bank and gain access to discount rates and higher borrowing levels. Are there any downsides of having all of your loans with one lender?
A. When considered simply from the perspectives of interest rates and the ease of managing your finances, there is definitely merit in having all your loans with the one lender. The key question though is: how much is it really worth?
Even in the current unstable interest rate market where lender margins are being squeezed from all angles, discounts for loans over $750,000 are readily available. Most clients can get a discount of 0.70% on a bank’s standard variable rate. This is well known in the market but unfortunately some lenders haven’t been as forthcoming as they could be about this fact. As a result, many people continue to pay the standard variable rate.
Generally, if you have over $750,000 in borrowings, then 0.80% is the common discount level, while for loans over $1m the figure rises to 0.85% plus whatever else can be negotiated. These percentages need to be put into a dollar perspective: if you had total loans of, say, $800,000, then the 0.10% differential represents approximately $800 pa. A 0.80% discount equates to $6,400 pa.
To obtain these discounts, most lenders will put you into a ‘package’ that has an annual fee of $300–400. This fee will usually cover upfront application fees and a myriad of other fees and charges. If loans are changed or increased down the track, the annual fee will usually cover these as well.
On the other hand, sometimes a basic loan product with no application fee (there are always a few of these on offer) works out to be a better option.
Recently, one lender (AMP) had a basic product at 8.12% with no application fee and a 100% offset account with no fees. Compare this with a few of the major lenders who would give you a 0.80% discount on your $800,000 loan. The rate is actually 8.17% pa (for three of the major lenders) and the annual fee is almost $400. In this case, the annual fee adds 0.05% to the rate so, in essence, you’re paying 8.22% – so much for the discount!
In deciding whether to use the one lender for all your property investment, it’s worth asking yourself how complex your lending arrangements are and how often they might change. The more complexity and the more you change things, the more value you’ll get from an annual package.
From a service perspective, unless you’re a private banking client (and this certainly comes at a premium) the same service/call centre looks after your needs, whether your loan is for $300,000 or $800,000. For the majority of consumers, certainly in excess of 95%, the call centre is a given.
So, carefully assess your own situation. For most consumers, the loan market is like a bottomless pit of choice and not many people who choose to go it alone can say with absolute confidence that they’ve found the right deal for them. On the other hand, the industry professionals – those who deal with 30 and more lenders on a regular basis – will nail it for you in one meeting.
is the CEO of X Inc Finance, which has a team of 300 brokers nationwide and assists in lending billions of dollars to Australians each year.
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