Does being loyal to the bank pay off or is it better switching banks? And why would you hire a Broker? Become confident through choice of actions
Confident or Scared of Switching Banks?
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Confident in dealing with banks
Unfortunately the level of confidence or self-confidence is not evenly distributed by God.
Some people are over confident, taking risks, others are under confident by missing out opportunities. Let me call it mindset and that can be changed by gaining knowledge and with skills to form relationships with people who are experienced.
When it comes to finance, every investor made at some stage the experience of being rejected by the bank. If you have problems, find a broker to get help. For the bank it is just a business decision.
Why would you switch banks?
No business would develop without capital or the finance market, which is global business. Banks have to be competitive and always look for new clients. Initially, I thought being loyal to my house bank pays off. Well, not really as I have learned over the years. Dealing with different banks makes sense for following reasons;
· Financial risk management, don’t have all eggs in one basket. Banks tend to tie everything together (cross collateralisation) and that makes it increasingly harder to borrow from a single bank
· Taking advantage of competitive products, as banks don’t tell you how to save on interests or fees.
· Splitting loans and borrowings among different lenders is essential to leverage the finance of income-producing investments
You can and should re-finance and switch loans even with the same lender or change to a new lender altogether if your financial situation or the finance market have changed. For reducing lending costs a finance broker can be of great assistance.
Bank’s risk assessment and lending rules
It is often a surprise that the “serviceability” figure (disposable income to repay the loan) and estimated financial capacity differ substantially between banks. Also when using a particular lending calculator to estimate how a mortgage could look like, that will not necessarily match the figure the bank will offer you. Banks apply discretionary lending rules to decide about a loan application.
Lender’s assessment includes:
· Disposable income (monthly income minus household spendings), household size (children and adults) and spending habits
· Career path (work history) and financial ability
· Management of financial commitments like debts, hire-purchases, Credit Cards
· Contributions to share the risk with the bank (deposit and equity)
Note to assess your “serviceability” criterions the lenders pre-set the value of household spendings (average). These figures might differ from your actual household expenses. This obstacle might be another good reason to engage a finance broker.
Getting help by a broker
I dealt with brokers as often as I dealt with banks directly. It really depends on what you have in mind and what the problems are. A broker does not do your homework and has similar questions a bank would ask. But dealing with a bank—you deal with their only offer. That is okay if you are satisfied with that offer.
In contrast, a broker deals with multiple banks and finance institutions. If you are not experienced with the capital market a broker service can help to find the best offer at the time to;
· Assist finding a lender and suitable loan product
· Work out and through a comprehensive budget
· Assess your situation before launching the loan application
· Deal with the lender on your behalf
In any case a broker can provide you with a reality check to make sacrifices, meet lending criterions and help to reach your financial goal.
Confidence to work with banks
Confidence is worth money. Knowing your financial situation I encourage you to regular review your loans and manage a combination of fixed and floating loans. In this way you can reduce the costs and be able to make lump-sum payments. Interest rates and circumstances change — therefore make adjustments accordantly. Examples;
· Long fixed loan terms—you face “breaking fees” if you need to sell
· Floating rates go up steeply - fix the loan on time
· High interest rates— monitor banks, switch for better rates
· Interest rates are dropping—stay on floating interest
· Extra lump-sum payments, reduce floating loan amounts
· Long-term loans—lower repayments, but higher total costs (interests)
· Shorter-loan term—higher principals, but lower total costs
Banks favour cross collateralizing as that gives them greater control over assets they require to secure the loan. People who deal with the “house” bank only get often trapped. Obtaining for each investment a stand-alone loan with a different lender is sometimes difficult but offers maximum flexibility.
Be confident, re-finance your investments if cross collateralized loans become a problem and avoid them whenever you can. Good luck.
Klauster Blogs lead to a real person who worked as computer network architect for many years in different countries until retiring from IT and mastering a life as property investor and landlord.
The passion of sharing experiences comes from turning hobbies into income streams and business. Helping people to avoid pitfalls and to be free to choose has been satisfying and most rewarding.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Come along and participate — boost your confidence!