Today we discuss – Refinancing jumps among home owners

WAYNE'S WORDS:
The above article refers to 3 related topics I wish to comment on. They are:
the potential savings of refinancing; the risk of inappropriate refinancing to borrowers and the industry; and the opportunities refinancing can create. I will comment on the first in this issue and pick up on the latter in future issues.

The potential savings of refinancing. After going through the time, cost and emotional stress of obtaining finance in the first place, you’d think that most borrowers wouldn’t relish going through the same process all over again any time soon, or at least not in the first couple of years of their loan.

And who could blame them, refinancing is not without pain. However, as the above survey shows, it’s highly likely that 2 out of every 3 borrowers will make the decision to refinance in the first 3 years. That’s astonishing, and some of these borrowers would have refinanced early on! However, this trend has been evident for some time and is obviously growing. I also believe that borrowers will continue to refinance regularly through the life of their loan.

This is because changing banks directly parallels other social norms, e.g. this generation of workers will change careers during their working lives far more often than their parents. You can also add life partners, insurance and phone companies, etc to that list! Change (not just evolution) is the new standard.

The message is a timely reminder to all lenders that borrowers will incur the time and cost of refinancing if they believe the benefits outweigh the cost.

Refinancing costs were previously a major factor but the cost to change lenders is not great, particularly as mortgage duty can often be transferred.

What is notable is that still less than half of all new loans in Australia (i.e. 40 - 45%) are raised by mortgage brokers. It is expected that brokers will break through that psychologically significant 50% barrier in the next few years but, until then, the majority of refinancing is still done directly with lenders, i.e. at the borrowers’ own behest and not influenced by a third party.

Whether a loan was refinanced directly, or via a broker, the survey confirmed that almost all borrowers (a massive 98%) were satisfied they were better off.

The accepted wisdom of “all lenders are the same” no longer holds true. Borrowers no longer believe that and are changing lenders to prove it!

Such overwhelming statistics also refute any suggestion that customers have somehow been duped by clever marketing by lenders, or slick sales techniques by brokers. Surely, they can only fool some of the people some of the time!

It should also be understood that, even if it was not referred to in the above article the same, if not even greater, benefits also apply to business loans.

In our practice, the value of reviewing loan structures and options (which may lead to refinancing) is regularly and demonstrably clear. Here are 2 examples:

1.      New clients had existing home and investment loans with a major bank and were looking to purchase another investment property. They had an excellent, long-standing relationship with the lender so there was no reason why they should not have been receiving the best loan rates and benefits available. As 2^nd generation customers they trusted their bank.

As part of our normal due diligence we perused the clients’ current loan statements for anomalies as well as opportunities. It was immediately clear that they were not receiving the best rates and value from their lender. We also noted they were paying principal and interest on their investment loan when they still had a non-deductible home loan. We prepared detailed loan applications on their behalf and also liaised with their real estate agent.

The additional benefits we generated for the clients were they also:

·          obtained a higher loan amount than what the bank had indicated directly which meant they could buy a better investment property;

·          are enjoying better interest rate discounts on all their loans which are now at the maximum of the bank’s advertised discounts;

·          cashflow was improved with lower investment loan repayments;

·          which should also improve their tax position; and

·          have the ability to accelerate the repayment of their home loan;

·          reduced their lender’s mortgage insurance premium through a more careful approach to their loan and security structures;

·          and, in this case, also avoided the time and cost of refinancing.

2.      These are also new clients in a fairly similar position to that of the above however the numbers involved are much larger. We are still negotiating with their existing lender, as well as a new lender, to maximise the total benefits of the final loan package. This means that we will not only achieve many of the same benefits we did above but we have already negotiated significantly higher interest rate discounts than those publicly advertised.

This will save them extra thousands in interest each and every year!

The key here is not that we can thump the table harder or ‘stare down’ a bank manager better than other brokers or even a tough borrower. That approach takes little skill and, if it works at all, it generally only produces short term results. We’re tough but we take a rather different approach!

Now, if I told you more I’d be giving away trade secrets but suffice to say we have a canny knack of achieving highly competitive and flexible results for our clients. Moreover, our lenders actively seek our business so everyone wins!

We also strongly encouraged both clients to seek detailed accounting advice on the ownership/ finance of their new purchase before signing a contract.

NB This is not just a marginal aspect of our client service and investment-driven focus. In fact, proper structuring advice is a key component of our holistic approach as it can materially affect the long-term wealth creation, taxation, asset protection and estate planning outcomes for every client.

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CLIENT OF THE MONTH:

See above for examples of our support and outcomes of recent clients.

The first scenario was for new clients, Mike and Tracey of Brisbane. (I used their real names as only their family on the Sunshine Coast know who they are.) The major financial benefits are outlined above but because Mike and Tracey are extremely busy with work and family our service also saved them time, was very convenient and, as their advocates, gave them peace of mind.

Distance was not an issue as all information was delivered by fax and mail and we provided regular updates (a feature of our service) by phone and email.

Do you have friends, family or clients visiting over the holiday season?

We also take this opportunity to remind our subscribers that our office will remain open throughout the holiday season as we are often called upon to assist intrastate, interstate and overseas buyers over this time.

Assisting clients from other locations is one of our strengths and specialities so please contact us if we can assist them with any initial advice on their finance options or if they wish to purchase a property in the short term.

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