Banks ain’t Banks!

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Stop! Do not pass Go. Ask your Finance Broker these questions before doing anything.

When buying property, whether you’re a seasoned investor or a first homebuyer, one of the most important relationships you will have to make is one with your bank or home loan broker. Why? Because if you can’t get the money you won’t be able to buy or afford to keep the property.

But how do you know if you are getting the best available finance for your property purchase? And how do you know if your bank or broker is really the best at looking after your interests instead of their own?

You see, many people think that banks are all the same – the reality couldn’t be further from the truth.  Some of you may remember the old Castrol GTX ad ‘Oils aint Oils’. The same applies to the banks – ‘Banks aint Banks’. There is an enormous variation across the banks and lenders not only in rates, fees and features, but also in terms of how much they will let you borrow, policies on what types of employment and income they will include, how they treat expenses, rent and what percentage of the purchase price they will allow you to borrow.

As an example, there is generally a 55%+ variation across the banks in terms of how much you can borrow based on exactly the same income and liabilities.  So, if you can borrow $250,000 with the lowest bank you could borrow up to $387,000 with the top bank. This could mean the difference between securing your dream home and missing out.

And it is also crucial to understand how much experience the actual person that is going to enable your loan has – forget about the bank name or brand – it will come down to one key person to make your loan happen.

So before you decide on which bank or home loan broker to run with, here are some key questions to ask that will help you make the right decision:

  • Who will be actually be managing my loan?
    You don’t want to be talking to the Bank Manager or Broker business owner only to find that after you have signed on the dotted line that the wet behind the ears new recruit who has left panel beating last week to do finance is handling your loan.
  • How much experience do you have in home loan finance and how many home loans have you helped settle?
    They may have been in banking and finance for years but home loans may only have been a small part of what they do so they may not know the ins and outs of getting you the best loan.
  • Do you own property and do you have a home loan(s) yourself?
    If they don’t then they will not understand the intricacies and personal concerns and needs of financing a property purchase.
  • Will you be cross securitising or cross collateralising my properties?
    If they say yes, run! You don’t want all of your loans tied across all of your properties – this is very high risk and limiting for you. Loans must be stand alone – if not go elsewhere.
  • Will my loans come with offset accounts?
    Fully transactional offset accounts are major debt reduction devices and are sleeping giants in helping you pay off your loan years earlier and saving tens of thousands in interest.
  • On top of the rate, what are the ingoing, ongoing and outgoing costs?
    Often these costs can make a low rate loan more expensive than a higher rate loan with no fees. Don’t pay too much attention to the comparison rate, as unless you are borrowing exactly $150,000 over 25 years the numbers are almost meaningless.
  •  What is the maximum you will lend against the value of a property?
    This can have a huge impact on how much deposit you will need and/or have a large bearing on the price of the property you can afford to purchase. The difference between a 80% loan and a 95% loan decreases your deposit from $105,000 down to $45,000.
  • Do you self insure or use an independent Mortgage Insurer?
    For loans over 80% of the value of the property most banks charge you Lenders Mortgage Insurance (LMI) to protect them if you default. If the bank uses independent Mortgage Insurer’s, you or the property may meet the banks policy but may be knocked out by the much more stringent LMI requirements.
  • Do you do free upfront valuations?
    Some banks will allow you to order free valuations upfront to confirm that what you are paying is what they think it is worth before you complete your loan application or waste a lot of time before finding out that the bank will only loan less than you think because the banks valuation is less that the purchase price – this happens more often than you think.
  • If you are fixing your home loan rate, what will it revert to at the end of the fixed period?
    You may be surprised at how high the rate will jump and may be better considering alternatives.

These are just some of the key questions you will need to consider to ensure you are getting the best available finance. On top of this, one of the most important considerations is whether you actually like, trust and feel comfortable with the person who is going to look after your loan. Home loans are a long term commitment and you need to respect and like the person who is enabling and managing your biggest financial cost.

So remember, Banks aint Banks!

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