We hear people saying that you do not need a mortgage adviser as you can go directly to the bank, and it’s true that you can … BUT is that the right thing to do?
Should you go directly to the bank?
It’s always quite interesting that people deem it a success to be approved for a mortgage and of course that is part of the success.
In many cases you could get the mortgage from a number of banks and therefore you could say that’s like a pass rate but isn’t the real success is making sure that you get the right mortgage? Do you want to just pass or pass with flying colours?
In New Zealand many people feel they have a relationship with the bank that they do their transactions with – the bank where their pay gets deposited and where they pay their bills from.
The bank spend a huge amount on marketing to ensure that that’s what people think.
Your Bank May Make It Easy
Your bank wants you to do all your banking with them, including your mortgage. It’s another way that the bank can make money from you.
They will say that it’s easy too.
Of course that bank has access to your spending and can see what your spending habits are like. So if you were managing your money okay and you wanted a mortgage they do not have to ask for your bank statements as they already have all of that data within their system.
In some ways that does make getting the mortgage slightly simpler as there’s one less thing that you need to do, whereas if you were to go to another bank or through a mortgage advisor you will have to provide your bank statements along with the other supporting information.
It may seem like quite a lot of work to get that stuff together but the reality is it’s a couple of clicks of a mouse and that information can be provided straight to the mortgage advisor or to another bank.
Also when that information is provided it’s not only the bank statements that provided it’s also the analytics of those bank statements so that the advisor or the other bank can see exactly what you’re spending your money on – just like your existing bank can.
The good thing is that a new bank or a mortgage adviser is only looking at the last three months worth of bank statements so if there was some history of poor account conduct that is not going to show to a new bank whereas the existing bank can see that.
So while your existing bank will not require you to provide bank statements, that is not always a good thing.
Why Should You Look At Other Banks?
Some people will ask why is it necessary to look at any other bank when you feel comfortable with the bank that you already do your everyday banking with.
Well firstly for most Kiwis the home loan is going to be the largest financial commitment that they make in their lifetime.
You’re borrowing a big sum of money from the bank and it’s going to take you many years to pay that off, even with the best planning and the best strategies.
The thing is about a big financial commitment is little differences and smarter features within the loans can have a huge impact on the long-term cost of that mortgage.
Now you could go to your bank or another bank directly and they may give you the mortgage and even talk about how to structure the mortgage.
The question that you should ask yourself though is how motivated will that bank be to show you how to save the many thousands of dollars that you could. Why would that bank be motivated when giving you savings means they are reducing the bank’s profit. Remember that the staff at the bank are working for the bank not you and the bank is working for their shareholders not you.
You’ve probably seen and are aware of the huge profits that some of these banks make and if you drill down and think about how they make those profits it’s about earning as much money as possible (within reason) from each of their clients – from somebody like you and me.
Mortgage Advisers Are Different
The key difference with a mortgage adviser is that they are actually working for you not the bank.
They do get paid from the bank but there’s no incentive for the advisor to assist the bank in making exorbitant profits. The adviser is going to be working for you to show you how to save money over the term of the mortgage and that actually reduces the banks profits.
It’s not just the best interest rate!
By saving money we’re not talking about just who is offering the best interest rate today – there’s a lot more to it than that.
Having the right loan structure and features within the loan enables you to make the best use of your money, and that is always going to save you more in the long run than just having an interest rate today that may be slightly lower.
In many cases it’s the flexibility of the loan and who controls that loan that are the important things.
Life happens … and things change
You need to remember that a mortgage is normally set up over 30 years and even if you pay it off early you might still have that mortgage for 15 or 20 years.
A lot of things can happen during that time in your life.
If you buy the house when you’re young you might start a family, have a job promotion, have a period where somebody’s off work through redundancy or illness, you might decide to go overseas to work for a while or you might decide it’s a good idea to go back and do some study meaning you’re down to one income until you get back into the workforce.
Life is not always plain sailing and yet too often the home loans are set up with no flexibility and based on the assumption that life will just tick along as it is today.
I don’t know anybody that could say they haven’t had some significant changes in their life in the last 15 years but the banks still structure everything on what your life is today.
That just seems wrong because today is merely one day in your life!
As an adviser giving advice is not just about what’s best today, it’s about knowing that life will change and making sure that you have a mortgage that can change with it.
So I’m going to give you a few real examples of what I mean when I say it’s not just about what’s best today, it’s about knowing that life will change and making sure that you have a mortgage that is flexible and can change.
Here are some examples of change that have affected us personally:
- Redundancy – yes, we arrived back from an overseas holiday and my wife was made redundant. It was a stressful time, but we were able to reduce our mortgage repayments to the minimum until she was able to get another job.
- Leaky Home – yes, we’ve had that too. Luckily it was not our home but it was still a stressful few years while it got fixed and the financial impact was huge as we had no rent for almost a year and still had to pay the mortgage.
- Family – like many young people we started a family and that meant going down to one income. We were able to plan this in advance and with the flexibility within our mortgage we paid our mortgage in advance so when we dropped to one income we could minimise the repayments.
- The Global Financial Crisis (GFC) – the GFC hit us hard as my income dropped significantly and quickly. This was another occasion when we had to minimise our mortgage repayments while we made changes to our business.
- COVID – this is more recent and like most Kiwis we were affected. Luckily we had learned from previous events and were able to access funds from our savings and so did not need to take a mortgage holiday. We also had some passive income so that meant we were not as reliant on my business income or the wife’s wages.
Yes, life’s thrown some curveballs!
What we do not know is what’s next – but we do know that there will be things in the future that could put pressure on our mortgage and finances, and so it’s good to know that we have the flexibility with our mortgage that will enable us to make the required changes.
In my view it’s important to have the right home loan:
- I’ve seen people that would have lost their homes had they been structured the way that the bank typically suggests.
- I’ve been involved in saving people from losing their homes because of the way that the banks had structured the lending.
Don’t let yourself be in the same situation.
It’s important that you look not only at what your situation is today, but be fully aware of how things can change and making sure that you have those backstops in place so that you’re not the next one to be forced out of your home through no fault of yourself.
In summary:
You could go to the bank and get a home loan and you may even get the lowest interest rate. Consider that a small win, but is it giving yourself the best chance over the next 30 years?
I’d suggest not and suggest instead that you contact a mortgage adviser who can give you advice based on experience rather than just some financial model that might have been learned in university last week.
Be prepared for change as there is no doubt you will have to deal with some in the future.
