Rate Busters? Looks like the cheapest?
- Thread starter s050399b
- Start date
The offset side looks ok at this point
ta
rolf
ta
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sorry thats just me 
I tend not to get excited about products per se
ta
rolf
I tend not to get excited about products per se
ta
rolf
I also had problems with two cheap online lenders. I am sharing this in the hopes others will at least be aware of the possiblity. In both cases, they put up the rate on my mortgages above the advertised rate after we were with them a while. They are still cheap but no longer the cheapest. When I rang to ask them why, they say they now have new products through a different funder that they can offer more cheaply than the ones I am on. They both had substantial exit fees. I think this is a commonly used scam and a hidden way to jack up interest rates after luring you in initially. They have no motive to keep the rates competitive because they advertise a different one. I am thinking about complaining to the relevent govt body.
The second lender was also very, very slow to get the mortgage up and running and took ages to approve the loan once we had found a property (more than two weeks). This makes it very difficult to negotiate in a competitive market. This could be because, a, we needed mortgage insurance or b, they get their funds from a mutual fund. These funds seem to have a shirtload of paperwork compared with the banks.
Cheers Ali
The second lender was also very, very slow to get the mortgage up and running and took ages to approve the loan once we had found a property (more than two weeks). This makes it very difficult to negotiate in a competitive market. This could be because, a, we needed mortgage insurance or b, they get their funds from a mutual fund. These funds seem to have a shirtload of paperwork compared with the banks.
Cheers Ali
Unfortunatey Ali, there's no simple answer/explanation to this. The explanation is complicated if you don't understand how mortgages are funded in Australia.
I'll try to explain it; the first thing to know is that whether your lender is a bank, credit union, building society or non bank lender- they raise all or most of their funding for mortgages offshore- and that funding is 1. less available than pre GFC. 2. more expensive than pre GFC and 3. more volatile than pre GFC. (but more on that in a moment)
The second thing to understand is that even the biggest banks in Australia raise money offshore for mortgages- because they don't have anywhere near enough retail deposits available to cover all the business loans, credit cards, personal loans, commercial loans and mortgages they offer. In fact, while the major banks borrow a much lower percentage of their overall requirements offshore than smaller lenders who dont have retail deposits, they actually borrow significantly larger amounts than smaller lender do.
For example-Westpac has a residential mortgage portfolio of about $270 Billion. CBA's is about $260 Billion. ANZ's is about $150 Billion and NAB's is about $180 Billion, but they dont have anywhere near that amount of money sitting in retail deposits. A non bank lender like Resimac has a mortgage portfolio of about $7 Billion, and has no retail deposits. Now, Resimac may borrow 100% offshore but thats $7 billion, while Westpac or CBA might borrow50% offshore, but thats $130 billion.
The third thing to understand is that lenders offer 25 and 30 year loan terms, but they usually borrow the money for mortgages offshore for between 90 days and 5 years. 3 - 5 years is the norm though, so what that means is they have to roll over /refinance the borrowed money every 3-5 years, as a general rule.
The fourth things to understand is that they dont borrow all the money at once. They borrow it in chunks, at different times. So a major bank might borrow $2 billion in January, $1 billion in February, $3 billion in March for example. The $2 billion borrowed in January might have been borrowed for 90 days. The $2 and $3 billion in Feb and March might have been borrowed for 3 and 5 years.
This worked for years and years and years without any problems- all over the world- because the big global investors who gave money to banks (here and everywhere else) believed that mortgages were safe. They believed banks exercised responsible restraint in their lending practices and during the late 90's in particular, those investors got quite relaxed about it all, and money became extremely cheap and easy for banks to obtain... so we saw housing booms all over the world fuelled by easy money. This is also why you saw the growth in non bank lenders in the 90's- and people like Wizard and Aussie entering the market and undercutting the banks- who used to take massive profit margins on mortgages because they held an oligopily.
But what also started happening, which led to the GFC ultimately- was that risk was largely ignored. A decade and a half of super profits, expanding markets, cheap and easy money, and regulators dropped the ball. Dodgy loans were done for dodgy people- ie subprime and in the end all that debt went bad, markets came apart and and the worlds credit markets closed up literally overnight. No global banks were lending to other banks, and offshore investors werent either. Everything stopped until Governments intervened.
So... in the meantime, Australian loans were found to be solid, for the most part. Little or no sub prime junk. Little or no rubbish. No 30-40% delinquincy rates here. Investors around the world decided Australia was ok, and eventually lenders here started being able to access funding again. But investors wanted a much bigger premium for their risk now- having just being taken to the cleaners by US and European banks to the tune of tens of billions- and they were much pickier about who they would lend to, how much they would lend and under what criteria they would lend.
So, when you combine points 1, 2, 3, and 4, and realise that we are about 3 years past the date when the GFC/credit crisis started, you start to see that
banks funding costs are shooting up, as loans they funded 90 days, 180 days, 1 2 ,3 , 4 and 5 years ago, roll over from price A to price B.
Banks arent silly. They knew this was coming- that's why they regularkly talk about "funding costs" in the media, and its exactly why they didnt pass on all the RBA cuts in 2007/8, and its why they passed on more than the RBA increases, at various times, in small bite size chunks in the last 2 years. Think of it like this. What used to cost them 20 centsfor every dollar they borrowed started costing them $1.50 or more. Its also why they are all doing it at different times to each other- because the debts roll over at different times- depending on when they bought the money. Its like a game.
Let me give you an example of how one major bank is playing the game brilliantly at the moment. - NAB have been holding their rates around 20-25 bpts lower than all other lenders for at least 12 months, and this is nothing but a grab for market share. Its been a success too. Theyve grown the size of their mortgage portfolio aggressively in that time. But they arent silly- they face exactly the same funding costs as everyone else to fund those mortgages- so its absolutely certain they are selling loans at a loss, or break even at best, and its even more certain that they will have to jack rates up significantly at some point in 2011.
So, the moral of the story is that your non bank product may not be the cheapest any more- but don't worry too much. If its in the ballpark- be happy. The days of there being a "cheapest rate" are long gone- now all you can bet on is cheapest rate for the time being. It will be at least 2 years before all the old funding lines have rolled over from Price A to Price B- and only then will stable mortgage pricing return. Of course- by then the banks will have taken back all the market share and can do what they want
I'll try to explain it; the first thing to know is that whether your lender is a bank, credit union, building society or non bank lender- they raise all or most of their funding for mortgages offshore- and that funding is 1. less available than pre GFC. 2. more expensive than pre GFC and 3. more volatile than pre GFC. (but more on that in a moment)
The second thing to understand is that even the biggest banks in Australia raise money offshore for mortgages- because they don't have anywhere near enough retail deposits available to cover all the business loans, credit cards, personal loans, commercial loans and mortgages they offer. In fact, while the major banks borrow a much lower percentage of their overall requirements offshore than smaller lenders who dont have retail deposits, they actually borrow significantly larger amounts than smaller lender do.
For example-Westpac has a residential mortgage portfolio of about $270 Billion. CBA's is about $260 Billion. ANZ's is about $150 Billion and NAB's is about $180 Billion, but they dont have anywhere near that amount of money sitting in retail deposits. A non bank lender like Resimac has a mortgage portfolio of about $7 Billion, and has no retail deposits. Now, Resimac may borrow 100% offshore but thats $7 billion, while Westpac or CBA might borrow50% offshore, but thats $130 billion.
The third thing to understand is that lenders offer 25 and 30 year loan terms, but they usually borrow the money for mortgages offshore for between 90 days and 5 years. 3 - 5 years is the norm though, so what that means is they have to roll over /refinance the borrowed money every 3-5 years, as a general rule.
The fourth things to understand is that they dont borrow all the money at once. They borrow it in chunks, at different times. So a major bank might borrow $2 billion in January, $1 billion in February, $3 billion in March for example. The $2 billion borrowed in January might have been borrowed for 90 days. The $2 and $3 billion in Feb and March might have been borrowed for 3 and 5 years.
This worked for years and years and years without any problems- all over the world- because the big global investors who gave money to banks (here and everywhere else) believed that mortgages were safe. They believed banks exercised responsible restraint in their lending practices and during the late 90's in particular, those investors got quite relaxed about it all, and money became extremely cheap and easy for banks to obtain... so we saw housing booms all over the world fuelled by easy money. This is also why you saw the growth in non bank lenders in the 90's- and people like Wizard and Aussie entering the market and undercutting the banks- who used to take massive profit margins on mortgages because they held an oligopily.
But what also started happening, which led to the GFC ultimately- was that risk was largely ignored. A decade and a half of super profits, expanding markets, cheap and easy money, and regulators dropped the ball. Dodgy loans were done for dodgy people- ie subprime and in the end all that debt went bad, markets came apart and and the worlds credit markets closed up literally overnight. No global banks were lending to other banks, and offshore investors werent either. Everything stopped until Governments intervened.
So... in the meantime, Australian loans were found to be solid, for the most part. Little or no sub prime junk. Little or no rubbish. No 30-40% delinquincy rates here. Investors around the world decided Australia was ok, and eventually lenders here started being able to access funding again. But investors wanted a much bigger premium for their risk now- having just being taken to the cleaners by US and European banks to the tune of tens of billions- and they were much pickier about who they would lend to, how much they would lend and under what criteria they would lend.
So, when you combine points 1, 2, 3, and 4, and realise that we are about 3 years past the date when the GFC/credit crisis started, you start to see that
banks funding costs are shooting up, as loans they funded 90 days, 180 days, 1 2 ,3 , 4 and 5 years ago, roll over from price A to price B.
Banks arent silly. They knew this was coming- that's why they regularkly talk about "funding costs" in the media, and its exactly why they didnt pass on all the RBA cuts in 2007/8, and its why they passed on more than the RBA increases, at various times, in small bite size chunks in the last 2 years. Think of it like this. What used to cost them 20 centsfor every dollar they borrowed started costing them $1.50 or more. Its also why they are all doing it at different times to each other- because the debts roll over at different times- depending on when they bought the money. Its like a game.
Let me give you an example of how one major bank is playing the game brilliantly at the moment. - NAB have been holding their rates around 20-25 bpts lower than all other lenders for at least 12 months, and this is nothing but a grab for market share. Its been a success too. Theyve grown the size of their mortgage portfolio aggressively in that time. But they arent silly- they face exactly the same funding costs as everyone else to fund those mortgages- so its absolutely certain they are selling loans at a loss, or break even at best, and its even more certain that they will have to jack rates up significantly at some point in 2011.
So, the moral of the story is that your non bank product may not be the cheapest any more- but don't worry too much. If its in the ballpark- be happy. The days of there being a "cheapest rate" are long gone- now all you can bet on is cheapest rate for the time being. It will be at least 2 years before all the old funding lines have rolled over from Price A to Price B- and only then will stable mortgage pricing return. Of course- by then the banks will have taken back all the market share and can do what they want
Just wondering if anyone knows whether this RateBusters product has had a ruling or been verified by the ATO?
I'm new to loans, so what's the difference between a Redraw account and an Offset Redraw? Is a Redraw account not a separate sub-account, how do you know how much you can Redraw otherwise if it's not a separate account?
I would have thought, that if the loan is a separate account to the money being deposited, then that would be ok. You can then show that the loan has been preserved, as it's a separate account to where the savings are going, does it matter what the organisation is actually doing with the funds in the background?
cheers
I'm new to loans, so what's the difference between a Redraw account and an Offset Redraw? Is a Redraw account not a separate sub-account, how do you know how much you can Redraw otherwise if it's not a separate account?
I would have thought, that if the loan is a separate account to the money being deposited, then that would be ok. You can then show that the loan has been preserved, as it's a separate account to where the savings are going, does it matter what the organisation is actually doing with the funds in the background?
cheers
Hi Gabs
Welcome
247
hard worker or a geometric progression ?
Ratebusters is a reseller of Firstmac Product
Previous discussions have shown the product is probably ok on the offset front...........probably
My initial response to you would be in the form of 2 questions
Do you know what you need in a product, and more importantly why ?
Will what you are going to today serve you in 1 3 5 or 10 years time.
ta
rolf
Welcome
247
hard worker or a geometric progression ?
Ratebusters is a reseller of Firstmac Product
Previous discussions have shown the product is probably ok on the offset front...........probably
My initial response to you would be in the form of 2 questions
Do you know what you need in a product, and more importantly why ?
Will what you are going to today serve you in 1 3 5 or 10 years time.
ta
rolf
i can't wait to get off this product in May 2012. that will be 5 years since i took out a home loan with rate busters.
they had one of the lowest rates at the time with an offset account. but every time there was a rate hike they would increase higher than the reserve bank. after only 2 years my rate was HIGHER than the big four. ridiculous! rate busters don't even have their own branches and i was paying a higher interest rate!
the thing that made me most angry was that the rates they advertised online were LOWER than my rate, and when I called up to complain they said it was for new customers only. there is no escape either because the break fee is a percentage of the loan, which is many many 1000s! after 5 years there are no more break costs, so that is when i'll get my freedom
low rates to attract customers, then they will increase it above and beyond whenever they get the chance and lock you in with an expensive get out fee.
i've found the best way is to ask friends/family what their rates are. chances are they've already done some hard bargaining and got a really good rate with one of the bigger convenient banks. then just walk straight up to that bank and get them to match it.
they had one of the lowest rates at the time with an offset account. but every time there was a rate hike they would increase higher than the reserve bank. after only 2 years my rate was HIGHER than the big four. ridiculous! rate busters don't even have their own branches and i was paying a higher interest rate!
the thing that made me most angry was that the rates they advertised online were LOWER than my rate, and when I called up to complain they said it was for new customers only. there is no escape either because the break fee is a percentage of the loan, which is many many 1000s! after 5 years there are no more break costs, so that is when i'll get my freedom
low rates to attract customers, then they will increase it above and beyond whenever they get the chance and lock you in with an expensive get out fee.
i've found the best way is to ask friends/family what their rates are. chances are they've already done some hard bargaining and got a really good rate with one of the bigger convenient banks. then just walk straight up to that bank and get them to match it.
Yep, and if you read Money Magazine, they often talk about them with disdain as well...even though they sometimes slip into their rankings. You'll find they don't appear often though, I reckon it's because of this type of "just try and lock in new customers" mentality.
I agree, they lock you in for 5 years on what seems like a good product that gets worse and worse. Then they source new products that are better, but existing customers are stuck on the crappy products. One of the "salesman" told me just that, they are constantly looking for new and better products (for new customers obviously, the old ones are stuck).
Rate Busters...Busted!
I agree, they lock you in for 5 years on what seems like a good product that gets worse and worse. Then they source new products that are better, but existing customers are stuck on the crappy products. One of the "salesman" told me just that, they are constantly looking for new and better products (for new customers obviously, the old ones are stuck).
Rate Busters...Busted!
