Complacent investors – Chris Straw

Despite all the recent changes to the finance sector and Australia’s enjoyment of some of the lowest interest rates in history, refinancing still requires very careful consideration.  We talk to Chris Shaw about his concerns.
Kevin: Well, despite all the recent changes to the finance sector and Australia’s enjoyment of some of the lowest interest rates in history, refinancing still requires very careful consideration according to one finance expert, who is the guest on our show, Chris Straw. Chris is mortgage finance expert and co-founder of You’re Welcome Finance. Chris, thanks for joining us.
Chris Straw: Thank you, Kevin. Thanks for the opportunity to have a chat.
Kevin: I love your name, You’re Welcome Finance. It’s very clever. Hey let me ask you about refinancing. Why is it, do you think, if there are such substantial savings that people are reluctant to do it?
Chris Straw: I think people were just complacent around their mortgage. I think we always hear the term in the media, “I can help save you,” and I think people become complacent to that. It’s a matter of when you point out the fact that people are perhaps paying too much, then they all of a sudden prick their ears up to see what they could actually save. It’s all about the conversation you can have. I think people have an attitude that changing banks is just too hard or clients are nervous of talking to lenders because they just don’t want to go through process of discussing their financial situation.
Kevin: Yeah, I agree with you that many people think it is hard. And I’ve got to say, even I feel that way sometimes. I feel like I’ve got a relationship with my bank. It’s easier sometimes to go along. But I guess if you think, “Ah, well, I’m only going to save, maybe a hundred bucks a month,” by the time you take that out to the full length of the loan, it can be quite substantial.
Chris Straw: Absolutely. And I think a lot of people were put into a mortgage that is just now outdated. The standard variable rate is over 5% from the major lenders but there’s rates out there at 3.6, 3.7 from small banks that a lot of people just don’t have access to them because they don’t have a branch network. So there’s considerable savings to have if someone can do the shopping for them.
Kevin: I guess the banks rely on this too, don’t they? The fact that many people are complacent and therefore they think, “Oh, well if they’re willing to pay those kinds of rates we’ll just leave them there,” rather than go to them and have some sort of customer service that says, “Well, we’re going to give you the best possible service we can give you.”
Chris Straw:  Absolutely. There’s a lack of productivity. I think we see that in all consumer-facing businesses that until you’re about to lose that client we take them for granted. I know my own situation, I approached my bank recently to have a look at my loan and they, before I even asked, they said, “Oh, we can trim some rate off of the rate you’re paying.” So I think they’re just waiting for clients to pick up and say, “Hey, I don’t think I’m getting a good deal,” or, “I’m leaving you.” And then that’s when they start becoming a lot more proactive.
Kevin: When you do go to your bank like that, Chris, does it affect your credit rating?
Chris Straw: Only if they actually do a credit inquiry. So, if you make a formal application and then they have to lodge a credit inquiry with Veda or those type of organisations. That’s when it may impact your credit score. But asking the question certain has no impact.
Kevin: Okay. So I simply ask the question. Is it best to be done … and this is a loaded question. I probably know what your answer’s going to be. Is it best to do it through a broker?
Chris Straw: Yeah, obviously, from a purely selfish viewpoint, I think. The reality is, we have access to over 40 lenders, so we can look at a client’s situation, what are they looking for as far as product needs. But if it’s purely about interest rate, we can look to the marketplace and see what the best rate is. Now, obviously, rates move from day to day, from one lender to the next. But it’s a case of having a look at what you’re paying and if it’s competitive already. And we can go to the existing lender and say, “Hey, this client will leave. Can we negotiate a better rate?” Absolutely, we’re prepared to do that. So it’s a case of if you’re paying way too much, we’ve got alternatives or options that they can look at.
Kevin: Have you got any idea that you can give us as to how many people are now using brokers?
Chris Straw: Over 50% of new mortgages are written by brokers. The latest statistics from the MSAA, our industry body, suggests that about 55% of all home loans are now written through mortgage brokers.
Kevin: Before I let you go, can you give me a practical example of how much someone can save if they look at refinancing their loan?
Chris Straw: Yeah, look, I recently looked at a client and they’re paying high 4s, 4.9 on a $1.2 million mortgage. We were able to refinance them into a loan that was 3.8%. So you look at that on a million dollars, that’s over 10 grand a year. So, that’s considerable savings over a 20-year term. Now, that’s an extreme example, but in most cases we’d be able to find savings of around 5,000 or more for your standard $500,000 loan.
Kevin: See, that’s a holiday, isn’t it?
Chris Straw: Absolutely. Holiday, new flat screen TV. It’s something that can just be a nice treat for the client each year.
Kevin: Yeah. I think I’d much rather have a holiday than a flat screen TV, so personal preference. Yeah.
Chris Straw: Absolutely. But it’s something that we can spoil ourselves with rather than thinking, “Gee whiz, I’m just paying too much but I don’t know what to do to get out of that rut.”
Kevin: Good talking to you. Chris Straw from You’re Welcome Finance. Thanks for your time, Chris.
Chris Straw: Thanks, Kevin. Talk to you soon.

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