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Borrowers will be the innocent casualties rather than the winners in the current mortgage price war, writes Lisa Montgomery
In case you haven’t already noticed, Australia is experiencing its own war at the moment – and it’s taking place on the mortgage battlefield. It’s a price war between lenders, with the weapon of choice being interest rates.
But what some may not be prepared for is that there will be some innocent casualties in this war in the form of unsuspecting borrowers not aware of the potential pitfalls of getting involved in such a battle – where there is only one thing being fought over.
These days, with so many innovative products on the market, it’s not enough to side with someone over one aspect of a loan when there is so much more to the financial equation.
On a daily basis we are now seeing one, two and three year fixed rates changing alongside very low variable rates as well. And the lowest of them are coming from those companies predominantly operating in the online market – who are able to offer limited to zero support with a low rate product.
The biggest concern about this current war is that borrowers who are the beneficiaries of these low interest rates might think they are financially healthy when, in fact, they are not.
In many areas of finance, while there are borrowers who do have enough home loan experience to understand and manage their financial commitments, there are many more, without the additional support of financial education and wider lending provisions, who do not.
In the absence of experienced, professional direction and the backup service of a dedicated lending representative, many of those borrowers who take up deals purely on one single low rate feature are throwing out the quality service-driven aspects of their home loan arrangements.
This is because they’re drawing the incorrect conclusion that a low interest rate equals the best deal. And this is simply not the case.
The harsh reality is that if they don’t have some level of specialist guidance and expertise to take them on the journey, they don’t have access to a healthy financial platform.
So, how exactly did this rate war come about, resulting in people having such extreme tunnel vision?
It started soon after the global financial crisis, when consumer confidence was tested by a shaky economy and has since continued to the point that it’s now being fuelled by overall inactivity among borrowers, who seem to have lost confidence in their personal financial health.
To move out of this battlefield and re-group, borrowers now have to be reminded about the entire value proposition of any mortgage package.
They need to think about what they don’t know in the scheme of things, how they can go about getting that information and support so they can become more empowered regarding their mortgage, and to understand as well the vital role that loan features and service play.
If you understand the role a good service provider can play in supporting your financial goals, you will understand why rate alone should not dictate your final decision.
Great service includes education about how to maximise your loan and its features, and this can potentially save you more than a low rate can – even in the first year.
Structuring your loan so that you have the flexibility you may need to accommodate changes to your personal circumstances should be a collaborative, yet empowering process with the right lending representative.
Investigating the merits of switching to a fixed rate; changing your repayment frequency; opting for interest only repayments; undergoing a loan conversion; or extending your loan length can all be options available to you if you know how and when to use them. But they are of no use without the right person to talk you through them and to help determine if they are appropriate for you.
So, when you’re next thinking about your property and your mortgage, don’t get caught up in a war which could leave you financially battle scarred. Ensure you’re well prepared for navigating yourself through the journey ahead.
Lisa Montgomery is CEO of Resi Mortgage Corp