I bet many of us have had that thought a few times in our lives. If I only knew my new job was going to be this bad: If I only knew the Powerball numbers in advance; If I only knew what mortgage rates were going to do.
You get the idea. I have a few as well. We took on a client – against our better judgement – about a year ago. He wanted a home loan and a few months ago we found him the best rate at the time. He was an acceptable credit risk for the amount he wanted to borrow at the time – he was also at his borrowing threshold. Since he got his loan a number of new entrants have come into the mortgage market offering what appear to be very attractive rates.
Our client – bless him – has been calling us daily to see why he’s paying 0.08% more than his friend who just got a mortgage last week. He has now scoured the market and convinced himself that he’s being ripped off. Last week we suggested that he try and apply for a mortgage at an international bank that he appeared to be favouring. We are not accredited with this particular institution – in fact they only deal with one broker but we have seen the fallout from people applying for loans with them – they have a very strict and conservative credit criteria.
We shared all of this with our client and wished him well. It was going to cost us thousands but if he was successful he would save 0.08% p.a before up front and mortgage discharge fees. Now this got us thinking. We could either put a tag on this client as the client from hell or review what our existing clients are on and see if we can do better for them. As we’ve only been doing home loans for around 16 months this wasn’t going to be a difficult exercise.
Now, this doesn’t mean we’ll be moving our clients from one bank to the next and incurring unnecessary expenses for them. It simply means that we should inform our clients and see if they want to have a conversation with their current lender. If after this and other strategies are exhausted without success, then we can consider the “nuclear” option.
If we only knew doesn’t apply just to mortgages.
I have lost faith in the current crop of economic forecasters as they seem to have got our economic prediction wrong time and again. It was only six weeks ago that people were still predicting increases to rates and now with all the pessimism in the economy the predictions have turned 180 degrees. The reality is many economic predictions are based on the latest economic data released by the government bodies. These may change from month to month or quarter to quarter. Many economists have a lot of pressure put on them by their employers to get something out to the market so that it can be used as part of a marketing strategy. Journalists then hitch their wagons to these gurus and we have a herd mentality of either it’s going to boom or it’s going to bust.
The reality is that for 26 years those economists predicting a bust have been wrong. They’ll be right one day but to get it wrong for a quarter of a century is pretty special. On the flip side those economists predicting a boom have also got it wrong since the end of the mining boom (and after the GFC if the truth be known as the mining boom was really only a boom for a couple of sparsely populated states).
So, these predictors of prosperity have got it wrong for at least 5 years and probably 9 years.
The truth, as always, lies somewhere in between.
So, what happened to our client? A few days ago, he informed us that he would not pursue his refinancing strategy any longer and would be staying with his current lender. But he insisted he was still being ripped off.
If we only knew.
This Week’s Top Policy Changes
Many banks are shifting their interest rates around to comply with regulatory edicts issued over the past couple of months. There are literally too many changes to list here. Not a day goes by where we don’t have an email from a couple of lenders changing their rates for one category or another. So, check with your broker or bank.
Call us if you need help – we can provide a very quick update of where banks are and provide a comparison.
The top policy change this week was the CBA’s change to lending into SMSF’s. Effective today, they’ve reduced the LVR’s for residential lending into SMSF’s from 80% down to 70%. This change brings them into line with most of the rest of the market. It’s not the end of the world but if your calculations were relying on an 80% LVR you may need to speak to a broker/CBA about alternate strategies.