CONTROLLING CASH CONTRIBUTION SWEETENERS
Banks are reducing incentives for borrowers and making it harder to obtain loans. Incentives such as TVs, phones, and cash have been offered by banks to attract mortgage customers for years – but such incentives are thinning and the banks are imposing tough stress tests which make it harder for borrowers to meet lending criteria.
Six months ago home-buyers were able to get $5,000 to $7,000 in cash from a bank by switching or taking out a new mortgage. Now cash contributions from lenders are not to be taken for granted.
While cash sweeteners have not totally disappeared, their availability and size have dwindled. Now, any contribution is likely to be in the region of $3,000 to $5,000 maximum and only for the right client from certain banks. Some lenders are offering no contribution or a maximum of around $1,500.
Facing increased funding costs and global economic uncertainty, the banks appear to be trying to claw back their margins.
Looking beyond cash contributions
Mortgage customers are now looking beyond cash contributions and towards more value added services such as expert advice on loan structure, early repayment options, best rates, and overall service and relationship when assessing or reviewing their mortgages.
This is one of the major advantages of dealing with an experienced Broker who can provide advice on all aspects of mortgage structure and property ownership. I have often found that people have been amazed when I provide them with information that they have not previously received from their bank. This relates mainly to ways of reducing debt faster and the proper structure of investment property debt. In many cases I have been able to show clients ways to reduce the term of their mortgage and save thousands of dollars in interest.
Banks and Economists are anticipating that there will be increased pressure on lending margins in the coming months which will influence interest rates. This is due to the banks trying to increase their margins back to previous levels and to the fact that they are paying more to win customers deposits. This will lead to higher funding costs being passed through to borrowers.
What to do when rates rise
A shift of 1% in interest rates could make a lot of difference in monthly payments for people depending on the size of their mortgages. For example, a client with a $500k mortgage will have increased interest costs of $5,000 per annum or more than $400 per month.
This increase may need to be planned for and if possible staggered over a period of time. I do have some helpful suggestions for clients and suggest that a mortgage review could be very valuable for anyone coming to the end of a fixed rate term.
If you or someone you know is looking at entering the market or would like to have a chat regarding the current or future property situation status, please contact me today. I will be very happy to meet for a catch-up.