Be careful what you wish for…
All of us love a bargain. It’s irresistible. Why pay the rack rate for something when you can get it for a quarter of the retail price. Those that have travelled to the US and frequented their outlet malls will know what I mean.
So it is with home loans. When Nick and I visit a potential client and show them what 23 lenders are offering in terms of price, features and suitability to their needs. Overwhelmingly people zero in on the interest rate. Understandable I hear you say.
Well, yes…and no.
Let me explain. Recently, a certain foreign lender decided to drop its home loan rate so that it was the cheapest on the market. Predictably, a few of our clients decided that was the home loan for them. When we processed the clients’ applications we were told that current SLAs (Service Level Agreements) are running at 13 business days. That’s two weeks before they picked up your file. Possibly another 3-4 days for a credit person to assess, come back with questions (which happens sometimes) and then make a decision – which may or may not be an approval.
We followed up when the 13 days were up (last week) and were told that the new SLA was now 20 business days. That’s a calendar month. So what’s wrong with that?
Well, it all depends on the purpose of your loan. If you’re looking to refinance from another lender to this cheaper lender, then the only risk you have to deal with is that the new lender decides that they have too many loans to deal with and they raise rates, manipulate LVRs or use some other mechanism to make you think twice about proceeding with your application. No harm done, we just apply to another lender that may offer the same solution for you but at a slightly higher interest rate (at the moment – around 0.1%).
Problem solved. I have to state that this strategy is rarely used but it has been known to occur.
But what if your financing was time critical? Say you were counting on a pre-approval to go to auction in two weeks or worse, you had already put a deposit down (a big no-no – but it happens) and were sweating on an approval to settle.
Our advice is that this product is not-suitable for you and we are therefore not allowed to offer it to you. And we don’t. Oh, we discuss it and try and steer clients away. The decision, at the end of the day, is with the client. We just have to make them aware of the risks. However, that outlet price is difficult to resist and when it’s the cheapest rate in the market, a simple internet search will bring it up. But sometimes, it’s just an illusion.
So, if the purpose of your loan is time critical, listen to your broker and don’t allow the interest rate to be the only determinant in deciding which loan you choose. It’s not worth the risk.