Should my Mortgage Rate start with a 3?

Amidst a period of record-low interest rates, many proactive and savvy mortgage brokers have been using one variation or another, involving the pertinent question:

‘Does your interest rate begin with a 3?’

As much as this is a very clever marketing strategy to pique your interest and give the broker and customer a chance to get acquainted and possibly do business, not everyone should be chasing the lowest interest rate you can find. From my experience, well over 80% of those initially asking for the lowest rate actually, in the end, choose a loan with a higher rate and are confident that their chosen loan is more appropriate for their needs.

Understanding what’s best for each individual client and circumstance at this point in time is what separates a Top Finance Specialist from an everyday mortgage broker or ‘order-taking’ finance salesperson. To begin to understand the magnitude of this you first must understand a key principle in sales.

The customer doesn’t yet know what they need!

Many individuals who ask the question of their broker, ‘What’s your best interest rate, mate?’ have learned all too late, once they’ve taken the ‘low rate deal’, that it maybe wasn’t the better solution to their problem. A finance specialist will always be seeking to challenge and educate their clients to the broader picture and raise discussion and questions about intentions, options, and outcomes.

All of my clients constantly hear me saying continually: ‘An interest rate [on its own] never has, and never will, determine the cost of a loan and how quickly you can pay it off.’

This is why understanding your situation in its entirety is critical to creating the best solutions for you. The clearer your intentions, the clearer the solution will be.

Here’s my list of Top 10 Factors to consider when selecting the right loan [for you]:

1.    Understand what features and benefits you like, want, need. Rate them if possible, including those you don’t like, want or need.

2.    Understand what the comparison rate is and how it affects your situation. The comparison is more or less like the ‘real’ cost of the loan including ‘most’ of the fees and charges which can be determined up front. Know all the costs involved.

3.    Make sure you are always comparing apples to apples and oranges with oranges.

4.    Always pay off your ‘Bad Debt’ first and before any ‘Good Debt’. Whilst it may be good to have a suitable loan with an interest rate below 4% on your personal home loan debt (non-deductible), for investment debts (deductible), you may be better with a loan which presents with a higher interest rate but delivers a host of other benefits including tax benefits, lower fees and flexibility.

5.    As best as possible, try to determine and plan how long you will have the loan for. Do you intend to pay the loan off quickly or not? Debt reduction strategy may or may not be what you are looking for.

6.    Discuss with your finance manager the difference between ‘basic’ rates and ‘package’ deals. The outcomes are very different for many reasons.

7.    Always be clear about the difference between Owner Occupied, Principal + interest, investment, Interest Only loans. The intentions and strategy are often different for each of these.

8.    Once your owner-occupied debt is paid off. Start paying down your investment mortgage. No debt or lower debt is always the over-arching goal. Your accountant and finance coach will guide you as to specific leveraging strategies as and when needed and access to different tax benefits available and relevant to you.

9.    Allow your broker to discuss the options and benefits of each solution put forward. For instance, there are home loan + investor combo deals available which allow you to receive a very special low-interest rate on your owner-occupied mortgage and a calculated higher ‘offset rate’ on your investment property loan. This is often referred to as a home loan reducer combo as it can allow you to focus on paying your home loan (Bad Debt) off as soon as possible whilst allowing your accountant to maximize your tax benefits and cash-flow position on your investment property loan (Good Debt).

10. Learn to ask better questions. Buying a mortgage is always a discussion and a process of discovery – Don’t treat it like a transaction.

11. BONUS: Circumstances change quickly nowadays – review your finances regularly and keep good records at all times. Your finance expert is there for the long game.  

Very few people fit the criteria to simply jump online, plug-in your details, upload your documents and get a loan settled without even speaking to an adviser. Especially if you’re up to stuff and interested in expanding your financial, business and personal position. Getting your finances streamlined can often take, time, attention and patience to iron out the kinks and navigate different life events.

As finance needs become more and more complex, the need for a solid team of experts becomes imperative. For this reason, it’s clear to see why, right now, more borrowers are seeking the services of expert mortgage and finance brokers than ever before.

The online movement is designed for simple, no fuss, inside-the-box, off-the-shelf loans. If that doesn’t describe you, then you require a finance coach. A team who are dedicated and committed to your journey – side-by-side.

John J Maxwell, senior mortgage & finance consultant, Cocalex Holistic 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.

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About the author:

John Maxwell is the founder and Senior Finance & Business Strategist at Cocalex Holistic Consulting. John has over 17 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 & Development, Writing, Franchise Development, and Business Networking.