BNZ has launched a new mortgage promotion, offering $1,000 for fuel or groceries and up to $1,000 for legal fees with new lending of $100,000 or more.
This sort of offer is part of a new trend by banks to offer non-rate incentives to encourage borrowers to shift institutions.
The NZ$180 billion home loan market is very competitive and interest rates are at all-time lows.
Bank-switching is now normal.
Even though the mortgage market is growing by about $700 million per month, new home loan approvals are running at just under $5 billion per month, seven times the rate at which the mortgage market is growing.
Because these numbers don't include renewals or rollovers at the same bank, they show a highly mobile market where borrowers have little loyalty to banks. Banks have to fight hard for every loan and rollover.
Client satisfaction may be high and rising, but it is equally high at most institutions, opening the door of confidence for borrowers to switch with little expectation of a loss of service.
This high level of churn is benefiting customers.
ASB is offering a free Sony Bravia 42 inch HD TV and up to $1,000 cash for every now home loan over $100,000. And customers may qualify for a 3 month break in repayments every year.
TSB is offering a free iPhone or an iPad with their lowest interest rate loans.
These incentive programmes are the banks' attempts to 'de-commoditise' home loans.
The implied choice is either take the goodies on offer now, or try and negotiate an even lower interest rate.
On a $200,000 loan over a 25 year term, every 5 basis points (0.05% - say 4.90% instead of 4.95%) is worth about $1,750 over the life of the loan ($875 per $100,000).
And that assumes you can maintain that 0.05% advantage for the full 25 years.
Or you can take the $1,000 benefit now, presumably paying the carded rate. (Banks will be less inclined to negotiate on the "low rates" if you take the cash now.)
The best way to work out whether any deal you are offered is right for you is to use our comprehensive mortgage calculator. Work out how you should negotiate on your own first so you know your cost/benefit parameters, and then ask the bank loan officer to bring up that same calculator when you are sitting in front of them in their office. That way you can assess the cost of their push-back.
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12 Comments
Don't agree. Most of these incentives stack up well vs squeezing out negotiated interest rate reductions - especially because you can't count on those rate reductions for longer than the 'fixed rate term'. These new incentives get you the full benefit now, and are especially valuable for people with loans under $200K.
KH: Disagree, David C, agree.
I got 100k loan fixed (was floating) with asb for 3 years at 5.75% to get the free TV. Sold TV immediately for $920.
Take that $920 off the interest expense over the 3 year term gives an effective rate of 5.44% fixed for 3 years (assume an interest only repayment).
Savings get better once the $920 is used to pay off some remaining I have floating (essentially $920 going back to ASB bank themselves for a TV they probably paid closer to 500 for).
David Chaston and Simon. Your assumption is that most people will do as you would. And leap straight to the calculator and work it out. And I too would sit down and work it out. And yes, sometimes I might be able to make such deal beneficial.
But this one is designed to catch those who can't think it thru, or don't bother. And the bank is not going to be offering them the really good interest rate, which you would automatically expect, demand and calculate on.
In the article it also notes a benefit is that the bank will give repayment holidays. Like is that a benefit. ? All the advice from those promoting financial literacy is to increase payments. And they show the numerical benefits of it. Some people are starting to realise, many still don't.
Remember this is in an enviroment where they need to preach that living on maxed out credit cards really costs you money. And while some people get it, a mass of people still don't understand that one at all.
I bet you can't split a $200,000 home loan equally between ASB and BNZ and get all those lovely things. Or can you? I can't be bothered to look at the terms and conditions - but I notice there is a certain amount of lock-in required.
Overall, I am not convinced that this is benefitting customers.
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