Don’t get me started on Banks!!
If you’re like me you don’t love banks. Whilst I appreciate we need them for all sorts of reasons, I wish we didn’t have to bow to their rules.
I really don’t like any business or organisation that is so large and so entrenched in our community and social or business systems that it’s hard if not impossible for an individual to have an impact on the terms of the relationship.
They make the rules and they make them to suit their best interests.
So here are some tips that you can put to good use as you regain some control.
After all banks should really be there to fit our goals and our needs.
We’ve been in the finance industry dealing with banks and loan products for over 20 years now. We’ve picked up a few pointers I think are worth sharing with you here.
Would it surprise you that by simply re-structuring someone’s existing loans and managing cash flow, it’s possible to cut a remaining home loan term in half?
1. Loyalty begins at home. No matter how much you like the people you deal with at “your” bank, they are a business – and in fact a business unlike most others. They make the rules, manipulate pricing set rates, fees, penalties and terms. Make sure you approach your dealings with any bank on the same basis as if you were buying a new car. You should understand what you want from your financial vehicle, then demand a product that fits!
2. Don’t think one bank will fits all your current and future needs.To use an analogy we should all understand, a Toyota 4 wheel drive and a Holden sedan are two equally capable brands, but clearly they are designed and built for vastly different tasks.
In home loan terms often this means you may need to change your bank as your needs and circumstances change. In reality we have many clients who have two or three different lenders, as no one lender can meet all our requirements. Some are better at investment loans than others for example.
Competitive market forces mean change is a given for bank products. So – who was best last year or the year before may be different this year as they are overtaken by a lender changing product or policy to grab market share. Take advantage of this competition.
3. Shop around – if you don’t have time to shop around use a broker. Banks change their products fees, rates, options very regularly. I know our finance specialist receives a daily update on this sort of info. It’s a constant stream of varying information. Sometimes it means we no longer recommend a particular lender as they have changed an option or removed a key feature. Sometimes a lender changes their product in a way that means they become the preferred lender in a particular area. So if this can change every day and it does, it’s hard for the average Joe to kept abreast of this AND consider all the implications of these variables. Find a really good broker you can trust and get them to do all the leg work.
4. Don’t let the bank dictate the terms of your borrowings. By this I mean if you want to borrow to buy a new car, your bank will typically “sell” you a car loan. Usually means higher interest rate, very short term repayment little or no flexibility and high exit fees. Similarly if you want to fund a holiday, they will point you towards a personal loan or perhaps a credit card. These loans are made to look like they fit and are easy, nicely packaged with pretty pictures of someone enjoying life or driving a sports car. It’s a case of clever marketing as opposed to sound financial structuring.
6. Don’t take an ad hoc approach to your borrowing and overall financial strategy. Sit down and map out your total assets, liability, income and expenses position is. Once you have a completed this review, identify the how much of debt you have and how much can be secured against residential property. The banks will give you your best rate using your residence as security.
7. Stick to your guns. The best rate is not always their first offer. As far as refinancing goes, consolidating and taking an aggressive approach towards negotiating with your lender should ensure you get the lowest possible cost of funds. However a great rate is just the start.
8. Identify your debt repayment capacity and then direct it towards the least attractive highest interest form of debt. Things like credit cards and or personal loans that haven’t been consolidated should be attacked first. Then move on to the other NON tax deductible debts.
9. Get serious about your plan. It’s probably not news to anybody that too much debt is amongst the most frequently quoted reasons for financial failure. The other is no time and lack of planning.
10. Seek professional guidance on your most appropriate structure. If you’ve let theone bank determine what your loan structure should look like you’ve probably got a great package that might give you what you want, but not at the best price and with the flexibility you should have.
11. Finally, take action. We know that home loans and financial plans and investment and tax strategies are not sexy or exciting, but if you can get it right and take the time to understand the solution, the benefits are absolutely sexy and exciting, rewarding and fantastic.
For an example of what improvements a good structure can do to a standard bank home loan have a look at our simulator
Of course feel free to contact us and we’d be happy to run some numbers for you.
