Expert Advice with Philippe Brach 29/1/2016
Four ways your bank could be costing you money
Can you remember buying your very first property?
I can still clearly remember getting my first loan for my first ever property purchase.
The whole experience was slightly stressful
, time-consuming and full of inconveniences – am I the only one who always has trouble finding a Justice of the Peace to witness legally binding documents? – but it was all worth it when I finally got the keys.
The apartment was small, and unrenovated, but it was all mine… and the nightmare of navigating property finance paled in comparison to the feeling of finally becoming a homeowner.
When I bought this property, I used my regular bank to finance the purchase, like many homebuyers do.
It was only two years down the track, when I began seriously looking into property investing and different finance strategies that I realised using my own bank had been a big mistake.
Why? Because once I discovered the finance opportunities I was missing out on, I realised my decision to use my regular bank, rather than shopping around for the best mortgage on the market, had actually cost me quite a bit of money.
1. They didn’t discuss my options
The various loan options available to me were barely explained
and by default, my banker set me up with a standard variable mortgage. I wasn’t informed about fix rate loans, or offered a basic variable loan – a product that came with a discounted interest rate and that (at that stage of my life) could have been quite suitable. If I had signed on to a basic variable loan, I could have saved 0.7% in interest annually. I didn’t, so I quite literally missed out on thousands of dollars in mortgage interest savings
2. They didn’t explain the features of my loan
With my standard variable loan, I had the opportunity to leverage all sorts of product features, like offset and redraw. The only problem was that my banker never explained to me what these features were or how they worked. At the time I had $25,000 sitting in a savings account that generated minimal interest. That money could
have been offsetting my mortgage – saving me hundreds, if not thousands, of dollars along the way. It is fair to say that a good bank loan officer would have explained these options, but mine just did not.
3. They didn’t take into account my future goals
In my experience, banks are very much focused on what is right in front of them. They are trained to sell loans, and driven to meet their weekly and monthly sales targets, which means they’re focused on ‘the now’, rather than wanting to discuss your long-term property and finance plans. Also allowing staff to give too much advice can be tricky and expose the bank to potential trouble. Finally staff come and go and there is no long term care of your financial situation. It is just the nature of being such a large institution.
A mortgage broker, on the other hand, is more interested in building a long-term relationship with you. This is why a good broker will ask you plenty of questions about your situation
and your future aspirations – not just for this property, but for all of the properties you own (or plan to own).
4. They didn’t offer me the best loan on the market
Obviously, this isn’t their fault. A banker isn’t going to say to a potential customer, “The loan we can give you is okay, but the current deal on offer at XYZ Lending is a much better fit for your needs!”
This is because at the end of the day, your bank can only offer you access to a handful of loan options – their loans.
Meanwhile, a finance broker has access to dozens and dozens of different mortgage products, each with their own unique and discreet advantages and drawbacks.
In my situation, all of those years ago, it turns out the loan I had wasn’t the best mortgage on the market for me. I ended up refinancing and after my eyes were opened up to the possibilities within property and finance, I embarked on a career in the industry as I thought brokers could offer a much more comprehensive service.
I’m a firm believer in educating yourself and doing your research, which is why I believe it rarely makes financial sense to simply take the best offer from your own bank when trying to get a loan, especially since APRA forced some new capital ratios and restrictions on investor lending last year. Every bank has changed their policies in different ways which makes it hard for a consumer to navigate the lending landscape and find which bank is best for them.
While some lenders are shying away from investor clients
, others are still offering loans adapted to the investor market. An experienced mortgage broker can point you in the direction of the latter!
Philippe Brach is CEO of Multifocus Properties and Finance
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property