Rate chasers beware of falling on own sword
John J Maxwell
Group CEO: The Uptick Group | Director at Cocalex Consulting | M: 0434 544 225
as published in - www.nestegg.com.au, Friday 7th April, 2017. article link
While a lower interest rate can make all the difference over the life of your mortgage or loan, there can be dire consequences for those who try and chase rates.
In an extremely competitive environment, as a consumer, we all know that there are a multitude of options to choose from nowadays. We’ve been taught that if we want a better deal with our mobile phone, internet, gas, electricity or car insurance, we simply compare and switch to a better deal.
When it comes to home loans or investment loans, you don’t have to look very far to find an advert in a magazine, online or on the radio or TV telling home owners to compare and switch their home loan to a better rate, right? However, those chasing a better rate could be unwittingly sealing a fate far worse than they might realise.
‘Rate shopping’ for the best mortgage or credit card is possibly the quickest way to destroy your chances of securing the best mortgage or even getting a mortgage approval at all. Many home owners have enjoyed accruing a large amount of equity in the property(s) over the last few years, especially in Sydney and Melbourne. Many have decided it’s time to look at utilising some of this equity to consolidate a few credit card and/or personal loans to free up some cash flow for Christmas and new year festivities or to purchase their first or next investment property. Some have simply decided it’s time to get a sharper interest rate.
If your clients tick one of more of the boxes above, they could be at risk of very quickly ruining their credit score. The real issue is, more than likely, they don’t know their fate until it’s too late, at the time of receiving a decline for their mortgage refinance.
Recent statistics by Australian credit bureau Veda reveal nearly three million Australians are at risk of credit defaults. This data is supported by credit repair law firm MyCRA Lawyers.
“Many individuals don’t realise they can legally access their own credit scores for free each year … but even worse than this, far too many Australians don’t realise that most lenders can instantly auto decline your mortgage application if you unwittingly just made as little as two to three credit inquiries in six months or just six credit inquiries within any 12-month period,” MyCRA Lawyers founder Graham Doessel said.
“I’ve seen too many individuals get trapped by this... In the worst cases, [they are] not able to get any reasonable sort of finance for up to five years just from one seemingly small, but costly, mistake.”
Accordingly, you should be aware of your rights as well as the consequences of not knowing your credit position.
The takeaway nugget from this is that you should be fully aware of your personal and business credit scores each year and to only proceed with a mortgage application once you have conducted your initial research and are comfortable. Home owners should ensure they have a current copy of their own credit file which they can send to any consultant to enable them to give their best quote without accruing multiple credit inquiries on their credit file.
John Maxwell, senior mortgage and finance consultant, Cocalex Consulting
If you have any questions or contributions relating to this article, please take the time to comment below and share your thoughts or opinions for the benefit of others reading this. No doubt this topic commands interaction, innovation and collaboration. The more answers that are delivered, the more questions that will arise. If you have any personal questions or queries, please feel free to contact me on 0434 455 225 or email: [email protected]
About the author:
John Maxwell is founder and Senior Finance & Business Strategist at Cocalex Consulting. John has over 16 years' experience in the financial services sector, and has owned and managed 9 mortgage franchises and has developed a background across the holistic financial services realm. He has particular focus and passion for: Leadership Training and Development, Franchise Development and Business Networking.
On Sabatical After 7 years working in Papua New Guinea, I am calling it time and returning to Australia to start the next chapter.
7 年What you are describing is the complexities that exist when lending money. There are multiple aspects and considerations that go into a lending decision (auto approved / declined or manually assessed). What you are highlighting is the absolute importance of having a representative (either Bank Lender or Mortgage Broker) who understands the borrowers needs and wants, and can identify a product that is suitable to the borrowers needs. Rate is not always the best determinant for the needs. Rate chasing can be identified by a good lender and that simple fact alone may suggest that the rate chasing customer may not be a customer that returns a suitable profit to the lender, so, the lender may seek other aspects and reasons why the loan may not proceed. Know your customer.
Customer Relations
7 年Great content
Armstrong Doessel Stevenson Lawyers - ADSLaw.com.au || Commercial Law / Litigation | Wills, Estates, Probate | Business Law, Leases and Debt Recovery | Credit Reporting Law || MyCRALawyers.com.au | Credit Repair |
7 年Thank you for the mention and the kind words John. You are correct in what you say and it is a problem many people create for themselves without realising it. The credit scoring models used by different lenders have similar bases and yet can be completely different, depending on the type of client profile they focus on. For example, if it is a 'Vanilla' mortgage client, the problem may not be with the lender as much as it'll be with the mortgage insurer. This is where we find almost always, an auto decline if the client has 4 or more credit enquiries in the last six months or six credit enquiries in the last 12 months. There are of course exceptions to every rule and this 'auto decline' rule may be manually overturned in the right circumstances, but not always. Another little-known issue is that of the 'payday lender' enquiry. Just one 'payday lender' enquiry on your credit report is reason enough to receive an instant, automatic, non-reversable decline from many lenders. There are so many factors taken into account to result in a 'credit score' that they could not all be listed here. An example of a few more though would start with: 1.) Time in your current occupation; and 2.) Time in your current residence; and 3.) Where you live (yes, living in one suburb will negatively affect your credit score as compared with another suburb - see article [ https://www.mycralawyers.com.au/be-careful-where-you-live-because-it-can-affect-your-credit-score ]) So, while making too many enquiries chasing the best rate or credit card offer can seriously affect your credit score and borrowing power, it is not the whole story. It is just one part of Understanding the Australian Credit Reporting System that once you learn, will help you avoid simple avoidable credit reporting mistakes. (See the video "Understanding The Australian Credit Reporting System"at https://youtu.be/LBWgKqjJzmQ )
Group CEO: The Uptick Group | Director at Cocalex Consulting | M: 0434 544 225
7 年Graham L. Doessel would you care to comment?
Founder | Helping Borrowers Beat Banks | Building Smart Technology Businesses | Giving is Good
7 年Your point on the consumer being aware of their credit standing is a valid one however, the quote about lenders auto declining due to multiple credit applications is not entirely correct. Lenders allocate points to different criteria linked to an applicant, term and basis of employment, period of residency at address, credit conduct to name some, all form part of point allocation. The aggregated point determines if the loan is auto approved (conditionally) or declined (and the loan writer can try to mitigate if there is a strong case for it). When it comes to point allocation in relation to credit history, a person with a history of unsecured debt inquiries i.e. credit card (balance transfer seekers), personal loans, car loans etc, is rated lower than someone applying for secured debt i.e. home loan.