How to take control of your home loan
Entering the property market, no matter how many times you’ve done it, is usually a stressful experience. Not only are you making the biggest financial commitment of your life, you are also locking yourself into a potentially restricted lifestyle for many years to come.
Some people find the experience too overwhelming and opt out of home ownership altogether. The main cause of anxiety relates to money – what else? The two main reasons as to why the home loan you initially signed up with has now become unaffordable is because of rising interest ratesand loss of employment income.
Contrary to what the lenders preach, the home loan market is not that easy to navigate. To many people it seems like they’re just going round in circles. Of course some offer cheaper rates than others but basically the products are all very similar. This is because the underlying philosophy is exactly the same in each of the competing home loan products. They all have trailing commissions built into the interest rates. So regardless of which product you end up with you can’t turn off these trailing commissions. Whether your interest rates are fixed or variable, you still end up paying trailing commissions for the entire duration of the loan.
In plain English, part of the interest which you pay every month on your home loan doesn’t have anything to do with your actual home loan. It goes directly to the broker or institution, whichspent a couple of minutes shuffling papers around before submitting your application to the actual lender. For their small administrative role, they are entitled to receive ongoing monthly payments for the duration of the loan.
The same principal also applies to other financial products such as life insurance, managed funds, margin loans, unit trusts, superannuation and pension funds, to name just a few.
Once you realise what’s been going on all these years you tend to get somewhat frustrated that you have no control over your money in these situations.
The lenders offer commissions as an incentive to their brokers and lending institutions. Lending Institutions are the big banks. It’s hard to imagine that the big banks actually pay themselves commission for giving you a home loan. But they probably need the incentive too!
Brokers are affiliated with certain lenders and, as a result, will only offer you a limited range of products. (Which are basically all the same only presented differently to look as if they are totally original). In effect, the broker/lending institution is not there to find the best product for you. Their goal is to secure you a loan that maximizes their rewards.
An average home loan of $200,000, for example, at 7% interest will cost the borrower $14,000 p.a. The borrower may not be aware that $700 of this amount goes to the broker/lending institution every year for no other reason than being responsible for submitting the initial loan application form.
Most borrowers would prefer to use this $700 to reduce their interest repayment. By reducing the interest rate the borrower can afford to pay off more of the principal and thereby pay off the home loan years earlier. But, for obvious reasons this is not what the brokers and lending institutions want. They want the borrower to remain in the dark about the underlying commissions in the home loan product and, continue paying out the loan for as long as possible.
Imagine the reaction you would get if you asked your broker or lending institution why they don’t charge a one-off fee for an average run-of-the-mill home loan. Or, if you asked the big lending institution why they don’t offer points and rewards on their credit cards that go towards reducing the home loan interest repayments. They would probably start feeling a bit uncomfortable.
Fortunately, things are beginning to change and the momentum is starting to pick up. Thanks largely to the Internet, people are discovering for themselves that there are other options available. Options that give them the ability to turn off the underlying commissions and take control of their home loan.
By searching the Internet for alternative financial products, borrowers have discovered that there are registered legitimate companies out there that retrieve 100% of the underlying commissions and credit it back to your interest payments.
These companies actually aggregate and convert commissions to reward credits. The reward credits are then used to make payments to your home loan lender, resulting in a reduced interest payment on your home loan.Financial products such as these are very simple and straightforward. You can fill out an application form online and within 4 weeks gain back control of your money.
There are many innovative money saving financial products available on the Internet. But, you have to be prepared to search for them yourself. You will soon realise that this doesn’t apply exclusively to the home loan market. As mentioned previously, it also applies to all other financial products that have underlying commissions. Start asking yourself how much more could you save if you could retrieve the commissions you are paying on your life insurance, superannuation, managed fund, margin loan, unit trust etc.
It’s your money, it’s your choice, and it should be under your control.