Interest rates are important but I believe this is one of the areas where banks differ very little, especially after negotiation.
Many differences are usually hidden in the interaction after you have taken the loan.
This is when things can really start to cost more in terms of time as well as fees.
Some key areas in which banks appear to act differently are Fees (Break and Accounts Fees), Customer Service, Internet Banking and Ability to hold interest rates.
Fixed Term Break Fees
If you have fixed your home loan and you need to break out of the fixed term, there could be a break fee. The reasons for breaking can include selling your house or wanting to take advantage of a lower rate.
The Break Fee could be a lot cheaper at certain banks, depending on how it is calculated.
While most banks base their calculation on the wholesale rate, a few may use the retail rate. You should ask your banker how their break rate is calculated.
Other Fees
A lender’s mortgage insurance fee only applies for deposits that are less than 20% of the house value. Currently there is a big difference between the banks on this cost.
Traditionally, this was a one-off fee added to your loan amount, but some lenders now charge a margin on the interest rate instead.
It pays to do your homework, as with an average sized loan, the difference between the most expensive and cheapest lender could be about $8000.
Most banks will offer a free cheque account, while some charge a flat monthly fee.
If you decide to take advantage of the flexibility on a redraw facility, there can be a fixed cost as well. Many people use this as their cheque account to lower the overall interest cost, and hence they are popular.
Banks can charge up to $12.50 per month for this type of account, although the charge may include all the transactions.
Customer Service
There is a good reason why certain lenders keep winning awards based on client surveys.
I believe this has a lot to do with the culture and technology of the lender.
Good Customer Service may mean different things to different people but I think the common theme is Trust. The feeling that you are with a lender who can be trusted often reduces the stress level.
Sometimes wrong advice or the lack of advice can cost you thousands of dollars. Please check the most recent independent surveys if this is important to you.
Internet Banking
It would useful to review your bank statement containing various transactions of the previous six months but surprisingly not all banks offer this service.
Some restrict this service to only 90 days.
Carrying a plastic card containing alphabets and numbers of even an electronic device in the name of security could be annoying. Many wonder if this is needed; some banks provide guarantees for fraud and let you chose a static password.
Ability to hold rates
Banks vary in holding interest rates and specialist advice from a broker is always useful. Some banks will enable you to lock in a rate and take a different rate on the day of settlement if it is lower. Ability to hold a rate for 60 days can be useful, but not all banks provide this facility.
Hamish Patel is an insurance and mortgage adviser for mortgagesonline.co.nz and can be contacted on (09) 6254693. Email: hamish@monline.co.nz. The above should be taken only as a guideline and not as specific advice. A full disclosure statement is available on request.
