Mark O’Donoghue the CEO of Finlease talks about getting the best out of your bank and home loan lender.
I would like to start this article by providing a basic concept that money is a raw material no different to fuel, tyres or groceries.
It is a commodity offered by many who are prepared to compete against each other to secure you as a client who uses their product.
In the process of seeking your patronage they will need to do (within reason) what it takes to secure that patronage whilst still being a reasonable outcome for them.
As we all know the dynamics of market pressure and competition creates the most favourable outcome for customers.
I do understand that many business owners and individuals may not be entirely confident that they have the best outcome for their banking relationships and home loans. Although they may be quite exceptional in their own areas of expertise such as logging and haulage, their knowledge of finance and what can be seen as a reasonable arrangement may be not as robust.
So here are the two really easy steps:-
Company banking arrangements
If a business owner is unsure that they have the best facility in terms of interest rates, covenants and security levels required, there is a very easy way to test this.
Simply have one or two of the other banks pitch for your business. A brief meeting and the provision of some basic financial information is all that those banks require. They will do the work to pitch for your business.
You can then review those alternate arrangements and either renegotiate your current position with your existing bank or migrate to the alternative bank should you so desire.
This small investment in time will either confirm to you that your present facilities are within market, give you the knowledge to negotiate a better outcome and/or change to a better banking structure.
This small investment in time may save you thousands over the longer term.
In order to share this very simple tip, I need to share with you the fact that despite being a 25 year veteran of finance, I was blissfully unaware that I was paying too much for my home loan.
I became aware, quite by accident that the home loan provider that I was using was offering a lower rate of interest on a home loan identical to mine.
When I rang them, they confirmed to me that the lower rate was “an offer to new clients”. Upon my expressing concern that being an existing client with five years of loyalty simply meant that I was paying a higher interest rate, they informed me that they would provide the lower rate of interest as a part of their “client retention program”.
I will spare you the details of my emotional response and simply summarise my second easy tip to get the best out of your home loan lenders and that is to make a note in your diary every three months to compare (via a simple internet search) what your home loan lender is providing to new clients to ensure you continue to get the best rate for your home loan.
Five minutes of your time every now and then can save some real dollars.
One final comment, it may be time to look at fixing the interest rate for 3 to 5 years on a portion of your home loan. Although we are still in a low rate environment, when the economy improves, home loan rates are the first thing to go up and the fixed rates go up quickly when it is about to turn. So it is worthwhile considering locking in some of your debt at these historical low rates. Food for thought.