It must be the bane of any retail employees existence – they spend their time, effort, and expertise discussing the features and benefits of a product, they explain the difference between product A & product B, they bring their customers different sizes, colours, or shapes, and then when they think they’ve almost closed a sale, the customer asks the inevitable question…. “Whats the best price you can do for me?”. And so they should, but why the heck don’t people ask this question of their bank???!!!
People will often settle into whatever deal they’ve got, and continue to pay interest at a higher rate than they need to… and it costs them a fortune!
Your home (or investment property) is most likely one of the biggest purchases you’ll ever make, so if you’re going to devote any effort to haggling for the best deal… this is the place to do it.
If all you ever did was haggle once for the best home loan deal, and saved 0.63% on your rate, it would be the equivalent of haggling for 20% off 2,689 pairs of jeans with a $100.00 RRP.
Allow me to articulate:
|4.78% Interest||4.15% Interest||Diff|
|Total to repay||$753,779||$699,989||$53,790|
|Total Interest paid||$353,779||$299,989||$53,970|
*Principal & Interest repayments over 30 year loan term
Jeans Saving Comparison
|Savings from Haggling||$53,790|
|Jeans RRP per pair||$100.00|
|Haggle saving per pair||$20.00 (20%)|
|Pairs required to save $53,790||2,689.5|
If haggling for 20% off 2,689 pairs of Jeans seems like hard work, don’t stress, there are other ways of making up the ~$54,000. You could buy 10 $53,790 cars and haggle for 10% off – at least you’ve got a more efficient haggle to benefit ratio! Or….
Get in touch and refinance your home loan.
How it works:
A mortgage broker is a representative of a ‘panel of lenders’ – i have over 60 banks & lending institutions that i can assess to find the best (and most appropriate) home loan for clients. Because a broker is essentially representing the bank that gets chosen for finance, the broker is remunerated by the bank, and there is $0.00 cost to the customer (*in most circumstances).
*Some brokers may charge clients a fee if loans are specific and complicated (for example, accessing equity from properties for a new investment property construction loan)
Now, before you run off and and go crazy refinancing your loans, make sure you qualify your broker. Just getting a cheaper rate doesn’t necessarily put you in a better position. For example, is it more favourable to:
- Pay principal & Interest or Interest Only?
- Have a variable rate or fixed rate?
- Have a split loan with a fixed & variable component?
- Have an Access Equity Line of Credit for investment purposes?
- Use LMI to minimise the impact on deposit required?
- Sacrifice cashflow to save interest or take a cashflow hit to build equity?
- Cross collateralise to save interest, or avoid cross collateralisation for asset protection?
- Have a mortgage offset account or a lower rate with less features?
- Expire other high-interest debt at the same time as your refinance?
- Have a higher rate in exchange for features and benefits that allow you to pay down debt faster and save you more overall?
There are a whole host of considerations, and getting them right the 1st time can save you a lot of hassle and expense.
Tips for qualifying a broker:
- Make sure they own (or have owned) multiple properties
- Make sure they can explain structures / options to you in language you can understand (if they can’t they probably don’t understand themselves)
- Make sure that they aren’t pushing or advocating for one specific lender (remember, they get paid by the bank – but they should be working for YOU!)
- Make sure they ask you the right questions. (refinancing one home in isolation might seem like a good deal at the time, but what if you want to access equity 1 year later to buy an investment property, or managed funds?) Consider your future plans.
- Don’t let them bamboozle you with jargon.
- Make sure they can turn it around in the timeframe you require.
If you really want a comprehensive experience and you have significant considerations in your financing requirements, consider seeing a mortgage broker who is also a Financial Advisor. Given that a Mortgage Broker is not allowed to give you personal financial advice, and a Financial Advisor is not able to give you specific loan product advice (ie: recommend a particular lender), seeing an individual who wears both hats can be incredibly powerful for your debt fueled investment journey. Debt structuring advice can have massive implications for tax savings, ease of accounting, cashflow and ability to access credit easily for new opportunities, but it is often overlooked. This is an area where a good Financial Advisor with debt experience can add significant value.
Getting your ducks in a row:
Before you see your broker, get yourself organised. Being “finance ready” means you know where you stand, and it can have a massive impact when you’re shopping for your next property purchase (or refinance). For example, when you go to an inspection a good real estate agent will always try to qualify you so they know who are the time wasters, and whom they should follow up. They will say “Are you ready to purchase”, or “have you got financed organised”. Being able to say a confident “yes” tells them you’re not mucking around, and that you should be able to move from contract to settlement quickly and painlessly (this is a big deal for some vendors and could make you the favourable bidder).
Your “Getting Finance Ready” Checklist:
- Have scans of your Drivers licence & passport on file. (signed by a JP)
- Have 3 x Recent payslips on file
- Have a PDF copy of your most recent Income Tax Return and Tax Notice of Assessment.
- Have recent rental statements from investment properties you may own.
- Prepare a cashflow statement that details all of your income & expenses.
- Prepare an Assets & Liabilities register (Balance Sheet)
- Reduce your credit card limits (this will increase your borrowing power)
If you don’t know your interest rate – get online and check. Regardless if you think its good or bad, there is the potential it could be better and you could be saving tens or even hundreds of thousands of dollars (and creating happier retail employees, by not hassling them for a $20.00 discount all the time!)
*I am an Authorised Mortgage Consultant, and Authorised Financial Advisor employed by Future Proof Financial – 3/97 Tamar St, Ballina, 2477.