Hannah McQueen is a financial adviser, chartered accountant, personal finance author and the founder of enable.me – financial strategy and coaching.
OPINION: The pandemic has been a cash cow for the country’s banks. Now, as we enter a recession you see them hiking mortgage rates with impunity but seemingly dragging their heels on deposit rates. It feels galling.
It’s no surprise there’s a cacophony of calls for a banking inquiry. Let’s be honest, if that happens, it’s going to take ages, so any impact on your bottom line will be a long time away.
But the good news is there are ways to ensure you don’t give any more of your hard-earned cash to the bank than you have to.
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Reserve Bank data shows the banks have loaned us $340 billion in residential mortgages, and given it’s typically your biggest financial commitment, it makes sense to start there.
A 30-year standard table loan is a surefire way to maximise interest payments. You’ll likely end up paying more than twice what you borrowed back to the bank over that time, which is likely a chunky number!
While negotiating a good interest rate is always a good idea, the savings pale in comparison to what you could save if you repaid it faster.
That’s not to say you should ring up the bank tomorrow and ask for a shorter term – that decreases your flexibility, worsens your financial resilience and means the bank holds all the cards. But you can limit interest, increase the pace of repayments and retain your financial safety net by using structures like revolving credit facilities and offset loans.
The fishhook is if you use a revolving credit loan poorly, you’ll maximise the interest you pay instead of the reverse. So it must be accompanied by financial rigour, including having a really good handle on what you can afford to repay over the course of a year.
It is only of value if the interest saved converts into more financial progress and too often it’s just consumed through inefficient spending.
Plenty of people think they’ve clocked revolving credits by putting everything on their credit card and keeping their cash against the mortgage until the payment is due. That would be of some (limited) help – if only you didn’t then find you’d spent more on your credit card than you intended to.
Unless that revolving credit balance is getting progressively smaller, the system isn’t working.
I spend a lot of time in my day job helping clients master their mortgage to repay it in 10 years or less – but it doesn’t just happen like magic. It’s the result of a whole lot of little steps executed well, repeatedly.
Don’t be afraid (or too lazy) to walk away from your bank. We don’t do it enough because it seems time-consuming, but the reality is a new bank will almost always reward you more for your business than your current bank will reward you for your loyalty.
In that hunt, a broker can be your greatest ally. Your bank will never tell you what another bank might give you, and sometimes – like the recent BNZ 4.99% special – rates are available that the average punter doesn’t know about.
Outside of your mortgage, there are savings lurking: Banks made $420 million in fees and commission in the December 2022 quarter, according to Reserve Bank data, so look there next.
Which of your accounts have monthly fees – can you place them with accounts that don’t incur one? Do you need as many accounts as you have? Receiving paper statements often attracts a fee. Are you eligible for fee-free accounts? The fancier your credit card, the larger the fee.
They each might be small fry on their own, but they add up.
Then there are unarranged overdraft fees. When there isn’t enough in the account and the bank honours the payment, it puts your account into arrears, which you pay a fee for, and interest on.
They often occur as a result of poor management rather than a lack of funds. So contact the bank and tell them you don’t want to be able to go into unarranged overdraft, and then set up an alert to tell you when the account drops below a particular dollar value.
When I suggest people ditch their credit cards, they exclaim: “But what about my rewards points?”
There’s a reason Kiwis have $6.1b outstanding on our credit cards – they encourage us to spend more!
We don’t clock it because they distance us from the pain of the money leaving our account and at the end of the month, whoops, there’s more owing than we thought there was.
If you have an outstanding balance, refinance to a low- or zero-interest card and then cut it up. Get a plan in place to both repay it and ensure you don’t end up back there. Forget the rewards and embrace the freedom of paying with a debit card.
What astonishes me is why people turn to the bank for financial guidance. When it’s in their financial interests for you to do poorly, why would you rely on their advice?
Giving less of your money to the bank requires some knowledge, some attention and likely some legwork – something the bank is quite literally banking on you having no appetite for.
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