Complacency in Home Lending
I recently read an article by James Symond of Aussie Home loans fame where he stated the following:-
"At Aussie, homeowners are saving an average of 0.66% on their interest rate when they refinance. Based on Aussie’s average refinance loan size of $346,310, that means that customers are saving over $1,600 per year. Even though the RBA hasn’t moved rates for over two years, lenders have been making their own interest rate adjustments, with many increasing rates for existing customers while saving their best deals for new borrowers. In this market it certainly pays to keep an eye on your home loan rate and review it with your broker regularly."
Now while I don’t necessarily agree entirely with Symonds in the comment that many lenders have been increasing rates for existing customers, I certainly think that they are not necessarily proactive in their dealings with existing clients. By not offering existing clients ‘special’ enticing deals as they would with new customers, lenders are able to widen the margin or return they are receiving on that loan. It makes sense therefore from the lenders point of view, profit wise, to leave existing clients in this position of ‘complacency’. This means that after a period of time on the back of product changes and a more competitive market place, existing customers can indeed find themselves paying interest rates on their home loan even as much as 1% above the market leading rates, and so a review is essential for a number of reasons inclusive of ‘pricing’ .
There are some important points to note when looking at reviewing the loan :-
Have the borrowers material circumstances changed – e.g. employment?
Is it in the client’s best interest to stay with the existing lender – switch costs or some other element may create a roadblock for the client?
What is the overall current financial position of the client?
Recently I was in consultation with an existing COMPASS client who was paying upwards of 4.50% on their home loan. After some discussion with them I decided to approach the existing lender to see what they could offer to retain the clients’ business, rather than complete a full review of the loan facility, proceeding through a loan reassessment. The existing lender came back with an offer below 4% in order to retain the business. In this particular client’s circumstances it was a most satisfactory outcome & was certainly in their best interest. It certainly shows that the review process can in some circumstances be a very simple & painless process.
Contact Michael Clarke on 65832211.