How quickly things can turn around in the world of finance. Banks are fickle institutions, making it nigh on impossible to borrow money one minute and then almost throwing it at customers the next!
BY ROLF SCHAEFER
The hint of increasing competition between the major banks that was blowing in the wind earlier this year has ramped up to an almighty battle of the big boys and we’re now seeing fierce campaigns to win business between the banks. Now is the perfect time to review your loans and get your financial ducks in a neat little row while money is easier to come by.
If you require a line of credit (LOC) or offset account with some extra cash as a financial buffer to see you through the next few years, this could be the best opportunity you’ll have for some time to put these contingencies in place.
If you’re in good fiscal health, with adequate income and of course, a property investment portfolio or even your own home in which you have substantial equity, you’re one of the attractive customers that banks want to throw their money at!
Many lenders are now aggressively marketing some very appealing interest rate discounts. This is a new trend – not so much offering a cut of maybe 0.5 per cent on your average variable rate when you borrow, say, $250,000 plus – but advertising the fact that they’re prepared to do a deal is certainly something we have rarely seen from the banks.
And the more you borrow, the more generous the banks will be. In some instances, you could be looking at saving as much as one per cent on your investment debt if you borrow $750,000 or more.
So if you’re thinking about purchasing a property for, say, $500,000 and require borrowings of $400,000 to do so, it’s likely that if you borrow at the maximum allowable loan-to-value ratio (LVR) and leave the additional funds in a LOC or offset account, you’ll be better off in terms of the rate discount you’re are eligible for.
By ramping up your borrowings – within your capacity to repay the debt of course – you could get a better deal from your lender! And of course you’ll have a nice financial buffer to better manage your cashflow in the years to come.
Unless you’ve been living under a rock, you’ll be aware that Treasurer Wayne Swan decided to play the hero for Australian borrowers and attempted to get tough on the banks.
At the end of last year, when the majors increased their retail rates above the official Reserve Bank rate rises, Swan promised to introduce legislation that would see the abolition of exit fees on loans and in his view, encourage competition.
The new ruling comes into effect officially on July 1, however many lenders have jumped the gun in a bid to win and retain customers, offering to waive their exit fees now and in some instances, pay any exit fees to your existing lender if you opt to bring your business over.
This can make it easier (and cheaper) for borrowers to review their existing loans and determine whether or not now is the time to switch to another lender.
Be aware though that the banks are a business and like any business, want to maintain and increase their bottom line. So look out for higher establishment or ongoing administrative fees if you do elect to go with a different bank and/or product.
Lender’s mortgage insurance (LMI) is often a bug bear for investors who choose to contribute a lower deposit to the purchase of their property.
Say you wanted to pay a 15 per cent deposit on your next purchase rather than 20 per cent, leaving you with an LVR of 85 per cent, in the past you would be slugged thousands of dollars in LMI fees on top of your borrowings to do so.
But with the resuscitation of competition in the banking sector, a few select lenders like Westpac and ING are offering to reduce the cost of LMI if you borrow between 80 and 85 per cent or between 85 per cent and 90 per cent in the case of Westpac. While this might not seem like much in writing, on a $500,000 purchase you could save around $2650 on LMI fees with ING and about $930 with Westpac.
The take home message for borrowers is that the banks want your business now more than they have for perhaps the last decade and are willing to make some fantastic offers in order to clinch new deals and retain existing customers. If you don’t want to switch lenders, try talking to your banks to see if they can do a better deal than the one you’re currently getting.
Rolf Schaefer has a wealth of knowledge about property investment, property finance and complex structures. His ‘can do’ approach has helped many property investors through the finance maze. Rolf has rated among the top Australian Mortgage Brokers for the past five years. For more information about Rolf visit www.metropolefinance.com.au.