Why It’s Time to Rename Not-So-“Special” Banks Home Loans
Kavinda Herath / Tips
âSpecialâ mortgage rates are misnamed. They are nothing special.
OPINION: How did we ever allow banks to call their standard home loans “special” and their special higher interest rate home loans “standard”?
The answer is, we don’t really pay attention to it because the marketing managers of the banks were working with their distorting magic on the English language.
In banking terms, a âspecialâ home loan is given to someone who has more than 20% of the equity in their home. These people are entitled to the lowest mortgage interest rates.
A “standard” home loan is for people whose net worth is less than 20%. They pay more for their loans, about a fifth more.
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Most people with home loans qualify for “special” home loan rates, either because they have had their home for a while or because they managed to get a 20% down payment (thank you bank mom and dad).
Bank statements (which banks must publish so the public knows what they are doing) make this clear.
Finance and Expenses Committee / Facebook
Reserve Bank Governor Adrian Orr expressed concern in August about the situation recent homebuyers might find themselves in, and since then prices have been rising rather than falling.
Westpac’s âspecialâ rate, charged to people with at least 20% share capital (who also have their salary paid into a Westpac account) is 3.65% for a fixed-rate loan of one. year.
On the other hand, its âstandardâ rate is 4.25%.
But it’s the reverse world of English transformed by marketing, and only a tiny fraction of Westpac customers pay the âstandardâ rate.
Of the $ 58 billion in home loans drawn on its group balance sheet at the end of March, just over $ 5 billion had home equity of 20% or less.
It’s the same pattern at ANZ, where just under $ 6 billion of $ 106 billion in home loans were for loans the borrower had less than 20% equity in at the end of September.
Now the definition of special is something that is “neither ordinary nor usual”.
According to this definition, which is good enough for the Oxford English Dictionary, there is nothing special about âspecialâ mortgage rates from banks.
While this is an abuse of the English language, it is not a violation of the Fair Trading Act, nor is this advertisement currently circulating on a frozen ready meals line that includes the line ridiculous: “Fresh from the freezer”.
It’s a world in which there is a “special” price for my usual coffee.
My coffee is on âspecialâ every two weeks or so at my local supermarket. That’s when I buy it. I guess other buyers are doing the same. Why would they pay $ 2 more for the bag when it’s not on “special”. This means that the “special” price is the usual price, and therefore not at all special.
The âspecialâ language shift in mortgage lending came after the global financial crisis more than a decade ago.
Banks charged people with small deposits a premium or “low net worth” fee and, in most cases, paid the same, or very similar, interest rate to other borrowers.
This changed as banks were required to hold more capital against riskier loans. Competition for high capital loans has led banks to reduce their rates on the most attractive loans in an attempt to secure more.
At the beginning of the âspecialâ loan rates, they seemed really special and deserved to be highlighted.
But those days are now over and it is time to get back to the original meaning of special, especially since bank after bank lending is limited to people with small deposits.
Special is also a better word for higher interest, low deposit home loans, and their borrowers, for another reason.
In these days of ridiculously high home prices, you have to be special just to get a home loan.
Special in that you have a large income, a large inheritance, or rich relatives, that is.
- Don’t let banking language fool you
- Home ownership remains the basis of household wealth
- Every hard-working Kiwi should be able to buy a home