There are two types of home loan borrower I meet at a BBQ, those who:
- go to their local branch for a home loan, accept the offer they are sold and then boast that ‘XYZ bank gave me a 0.8 per cent discount for being a loyal customer!’
- ask themselves how they can get the best deal and then consult a broker who knows which banks are eager for business – with much bigger discounts
Recent research by Digital Finance Analytics proved this point. They calculated that since January banks have been heavily discounting interest rates. The average discount is 1 per cent, but the best discounts are 1.3 per cent.
Digital Finance Analytics also found that the discounts on loans arranged by brokers rather than branches were around twice as big as those arranged by the branch.
Let’s face it, if you are an existing customer who has loyally stayed with XYZ bank, they probably don’t have to drop their rates that much for you to keep your business. But, if you are a new bank eager to win new business you will compete aggressively to win the customer.
Brokers know which banks are aggressively competing for business. But, if you just went to your local branch, would they tell you if you could get a better deal elsewhere?
Next time Mr Smartypants boasts about the deal that XYZ bank offered him, ask him how the offer compared to the discount from 123 Bank or ABC bank. Because he did not bother to compare loans, you will see the smug smile fall from his face – especially if you also ask him about what he was offered by the banks that solely go through brokers, such as AMP or Macquarie.
I am negotiating some loans for my clients with slightly bigger discounts than those identified by Digital Finance Analytics. And the best part is that the client does not pay me to do so – the banks pay me a commission.