If you haven’t reviewed your loans in the last 12 months, you need to read this …
The world of lending has changed over the past few years, with the Royal Commission findings and banks reducing the availability of funding.
At Insight Advisory Group, we want to see our clients and soon-to-be-clients maximise their financial position, and not pay any more interest to the banks than necessary in achieving this. As we have the skill and expertise to assist our clients in this space, we wanted to provide you with a list of key considerations below that can assist you in negotiating a better deal with your current financial institution, or find a financial institution willing to give you a better outcome.
Can you afford to pay back principle?
With banks policies changing, it is even more important to be managing your interest only maturities, as financial institutions are no longer allowing a simple rollover back to interest only terms again. This can catch clients out by surprise, so we believe you should look at this 6 – 12 months prior to the maturity of the interest only term, which will allow enough time to discuss and work with your current financial institution, or look at other financial institutions which meets your needs.
Do you have loans owed to you from your entities?
From time to time we see clients who have home loans (non-tax effective loans), but also have money owed to them personally from their business or trust structures. By looking at this, there is potential to restructure your loans to clear your home loan and increase interest deductions against tax on the same level of debt. If you do have loans owed to you personally in your financials, please speak with us to see what can be done to optimise your debt position.
What is your fixed versus variable interest rate split?
Interest should be seen as a cost of achieving your goals, thus is an expense and all expenses should be reviewed on a regular basis to optimise your position. With the cash rate at historical lows, fixed rates are becoming ever more enticing to lock in certainty of loan repayments for longer term debts. If you don’t have a strategy/view on how to manage your interest rate exposures, it is probably worth a discussion surrounding how fixed rates could form part of your debt management strategy.
Do you have the right facilities to suit your purpose of the borrowings?
Banks have many different products, and some are old and some new. If you are not aware of what product you are in, this is a flag to review the product and make sure it meets your needs. Certain features in loans reflect indirectly into the interest rates (example a portfolio loan), thus if you are not utilising the features, you may be paying for something that you don’t need or want. As banks have a very low client engagement model, we believe that clients should review their loan products to their objectives regularly, and we would be happy to assist you in looking at what product you have and whether this aligns to your needs.
Are you under an annual review/have a relationship manager?
Many clients think that if they have a relationship point in the bank, they would be looking after their best interests. Whilst this is the case for many, at the end of the day they are operating a business within the bank, and generally are measure on profitability of their clients they manage, thus when it comes to obtaining the sharpest interest rate, this may not be available as the cost of the relationship is factored in. If you don’t need the relationship, or don’t have complex lending needs that warrant this involvement, we feel it would be worthwhile to just consider this and determine how much you value the relationship manager allocated by the bank, and whether this is actually a “must-have service” or a “nice to have” service, as you will be paying for this indirectly in the rates you pay.
Do you know what your bank has passed down from the RBA rate cuts over the past few months?
If your bank hasn’t, it is worth to look at what the market is paying. The RBA’s position to cut rates is to assist the macroeconomic factors of the Australian economy, not to provide larger profits for the banks. Given the current environment, we feel that banks can provide different interest rates for different clients at different times, and if they haven’t passed the full rate cuts on, then what else aren’t they passing on? Just remember, banks don’t pay for loyalty, and you “don’t get if you don’t ask”!
We trust these considerations provide food for thought when you are reviewing and reflecting on your debt positions, as there are very few times there is not value to be extracted by a second opinion looking at your debt requirements.
If saving money and reducing the amount you are paying to the banks is important to you, it’s important to us!
We welcome the opportunity to assist our clients and soon-to-be-clients achieve an optimal lending position.
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