The recent decision by the Big Four to raise interest rates independently of the Reserve Bank has made for interesting financial news over the last week. The consensus seems to be either that the banks are ripping us off, or there are other economic and financial forces in play that we mere mortals do not understand.
The global financial situation does appear to be somewhat shaky, and that uncertainty increases the risk premium that lenders expect for the use of their funds (a bit like betting on a horse race!). The focus of the RBA is on the Australian economy, and dealing with the various sectors of our economy is an interesting balancing act at the moment. While international factors do affect the Australian economy, these are just part of the RBA’s decision-making process.
On the other hand, the banks must deal in the international market, which is significantly more affected by the global uncertainty. This makes it not unreasonable for the banks to have a slightly different view of economics to the RBA. Keep in mind that we are talking about a 0.1 of a percent rise – which is hardly a massive difference of opinion.
At the same time, politicians are keen to remind us that they (single-handedly) have done away with exit fees, making it easier for borrowers to move from their current lender to find a better deal.
As usual with politicians, I wonder whether they really are in the real world. Assuming you have the time and knowledge to accurately compare a range of financial products and decide which one best suits your specific needs, the hassle of actually applying for the new loan, finding all the supporting documentation required, and doing all this within bank opening hours…it is nowhere near as easy as the politicians would have you imagine.
Added to that, the differences are quite often tiny, and the costs of loans at any point in time can change. The wonderful loan you negotiate today may be a less-than-ideal product in six months time.
So how do we avoid excessive bank charges? The simplest way is to pay your loan off as quickly as possible! (I said it was simple, not easy.) You are far better off investing the time you would spend analysing and shifting your current debt in formulating a comprehensive plan for your life (if that’s too big, then just your finances!).
We now offer a LifePlan process which helps you to identify your priorities and make a realistic plan for confidently moving forward to achieve the life you want. This is much better than doing nothing and taking whatever the banks (or anyone else) have planned for your life. We would welcome the opportunity to discuss the possibilities with you, so Contact Us via our website or just call on 4928 9244.
Also in this month’s Wealth By Design: