This post is about the importance of Impartial Advice.
Let me explain the situation. I was approached by a reader of this blog to help them choose between Kiwi Bank and Westpac. We don’t mind people calling us for a bit of advice late in the process, but that’s not an open invite!
They had been to a number of lenders directly including National and ASB and were having problems with a new property purchase. My view back to them was to go with whoever had the best Mobile Mortgage Manager – which turned out to be Westpac.
Further into the conversation I learned they had a few properties with National Bank. Incredulously every Mobile Mortgage Manager they had spoken to was going to refinance the lot. The logic was obvious – the lending would go from $350k to over $1m and they’d hit sales targets.
What nobody had pointed out to the client was that the existing National Bank mortgages were fixed for 5 years at 6.50%. At today’s rates these mortgages were “in the money” and worth $30,000! In other words over the next 4 years someone with a 5 year fixed rate of 6.50% will pay $30,000 less interest than someone who stays on floating.
Needless to say – if you have a great long-term fixed rate then you should be very reluctant to give that up. As it happens, on this occasion we ended up sorting everything. The new purchase was approved and we managed to leave the existing properties with National Bank on 6.50% for 5 years.
This is not an isolated event – I have seen this exact issue 3 times in the past 2 weeks. Be careful of refinancing existing loans unless it is necessary and in your best interests.
