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The Pitfalls of Sticking with Your Bank for a Mortgage
As more Australians look to break into the property market, experts are warning against a common pitfall: applying for a mortgage with the same bank where you hold an existing account. Although it may seem logical to remain loyal to your bank, doing so could significantly delay your mortgage application.
Insights from Mortgage Broker David Pelligra
David Pelligra, a mortgage broker with Wealth Point Lending, recounted a recent experience that highlights the complications often faced by clients who apply for loans through their current banks. During the application process, Pelligra received a surprise call from the lender, asking for clarification on a seemingly trivial transaction in his client’s bank statements.
"This kind of scrutiny is frequently encountered when dealing with a bank that already holds a client’s information," he explained. While banks typically have access to comprehensive financial data, such as income and living expenses, they may take a closer look at minor transactions when evaluating loan applications.
In the instance Pelligra described, the bank questioned a $150 money transfer labelled as a wedding gift. Despite the clear labeling, they insisted on verifying the transaction with the broker. Similar scrutiny extended to rent payments sent to a housemate, prompting further inquiries from the lender.
The Risks of Excessive Scrutiny
Pelligra noted that while such inquiries rarely lead to outright denial of applications, they can create considerable delays in pre-approval. The extended back-and-forths with lenders over minor details can be especially problematic in fast-moving property markets. A few days’ delay might mean missing out on securing a desirable property.
He pointed out that while many clients feel a sense of loyalty towards their existing bank, it’s more advantageous to seek out the lender that offers the best deal.
Interest Rate Changes on the Horizon
Looking forward, many prospective homebuyers are eyeing the anticipated cash rate cuts by the Reserve Bank of Australia (RBA). Set to announce its decision by May 20, analysts predict a reduction from the current 4.10% to as low as 3.85%. This shift could make home loans more accessible, especially for first-time buyers.
Major banks are aligned in their predictions for interest rate cuts throughout the year, expecting reductions in May, August, and November. Here’s what some of the major banks forecast:
- Commonwealth Bank (CBA): Three reductions in May, August, and November, ending the year at 3.35%.
- Westpac: Similar predictions as CBA with a target of 3.35% by year’s end.
- National Australia Bank (NAB): Forecasts five reductions across multiple months, hoping to drop to 2.60%.
- ANZ: Forecasts three cuts, aiming for a final cash rate of 3.35%.
Conclusion
As Australians prepare to enter the property market, the importance of choosing the right lender cannot be overstated. Avoiding unnecessary scrutiny and potential delays associated with existing banking relationships can be crucial in securing timely mortgage approval. With upcoming interest rate cuts potentially stimulating the market, now is the time for homebuyers to explore their options thoroughly rather than relying on banks where they already have accounts.
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