Are you getting the right loan advice? As you may have experienced yourself, or heard from family, friends, or colleagues, you do not necessarily get the best and cheapest home loan at the bank on the first attempt.
As you may have experienced yourself, or heard from family, friends, or colleagues, you do not necessarily get the best and cheapest home loan at the bank on the first attempt.
Make the most of your unique position
The Danish Consumer Council (Forbrugerrådet Tænk) offers their explanation for why. “The bank adviser has a conflicting dual role as both salesperson and adviser, which can create conflicts of interest... If you want advice that is independent of sales incentives, you should use an independent financial adviser.”
Read more: Forbrugerrådet Tænk (the Danish Consumer Council)
A loan to buy a home is the largest loan in most people's finances. The banks know this too – home buyers and homeowners are the most attractive retail customers for banks. Conversely, this means that a home loan is one of the most unique situations you, as a customer, can find yourself in with a bank. You can use this to your advantage to get the cheapest loan for your needs.
There can be several reasons why you do not get the cheapest home loan for your needs. What they have in common is that you have not made sufficient use of your unique position. This may be because your focus on price is diminished by the need for loan advice, because you don't have the time, or because you don't feel comfortable negotiating.
A loan can quickly become expensive
But have you considered that if you buy a freehold home for 4 million kr., you will have a loan of 3.8 million kr. if you make a 5% down payment? Over the term of the loan, you will repay up to 6.5 million kr. That is 2.7 million kr. in interest. There is therefore plenty to negotiate, and just as in many other buying situations, taking out a loan to buy a home is also a negotiation situation.
This means that even small improvements can lead to significant savings. But it is important that the savings are not achieved by compromising on your day-to-day finances. Just as it is important that the security of your day-to-day finances does not leave you paralysed when it comes to securing the cheapest home loan.
It can also pay off to negotiate the price of the upcoming home, for example with the help of a buyer's agent, since, for instance, a 100,000 kr. reduction has a huge effect on your future loan.
Remember to get several offers
Whether you handle the negotiation yourself or leave it to others, compromising on loan advice is never the solution. It can therefore be a good idea to gather several offers from different banks.
The gain from negotiating with the bank could be the highest hourly wage you will ever earn.
You can read about our financial advice and how the right loan advice can help you gather several offers from banks. The Danish Consumer Council (Forbrugerrådet Tænk) estimates that you could save up to 25,000 kr. or more per year if you make the effort to research the market.
Financial advice or loan advice – not just for the wealthy
Many people have a mistaken idea that a financial adviser is only for the very wealthy. However, that is not the case – quite the opposite, in fact. A financial adviser can give you the right loan advice across the products of every bank. That is why they work exclusively to optimise and advise you on the best solution for your situation. A skilled adviser can typically save you many times their own fee, as well as give you clarity, confidence, and peace of mind in a complex and difficult market.
Combined with a buyer's agent, you will be in an extremely strong position for your upcoming home purchase.
Good advice for when you go to the bank. When you go to the bank – whether it's your own bank or another – it's a good idea to be well prepared early in the buying process. That way, you will need less time later on. It will give you a better overview when things get hectic or move quickly.
When you go to the bank, you should:
- Have prepared a thorough budget
- Prepare a description of yourself and your family
- Be prepared to consolidate your banking business in one place
- Prepare your arguments (good savings, good salary, I rarely or never go into overdraft, etc.)
- Focus on not being oversold – you don't necessarily need a MasterCard Gold
- Make sure you have savings
Note, however, that the right loan advice and financing structure can save you considerably more than the 5,000–10,000 kr. you might potentially negotiate off the fees. Many bank advisers are genuinely skilled at their job, but they are limited to their own products and therefore cannot put together a bank product tailored specifically to your situation.
The budget – remember to be thorough. This may sound like a trivial exercise, and many people think they already have a good handle on what they spend their money on. But it can be a great exercise to sit down and make a budget of your income, fixed costs, and variable costs. The more thorough you are with your budget, the better overview you will have of what you spend your money on, and what you can actually afford when you go out to buy your future home.
One good piece of advice, which may take a bit of patience, is to go through your online bank account and reconcile every single expense you've had over the last 3-6 months. You will be surprised at what you spend money on, and you will most likely find places where you can save or reprioritise. Perhaps you'll discover that you spend a lot of money on your morning coffee on the way to work, or that you still have a subscription running that you no longer use.
Most importantly, though, you should have a clear picture of your finances and not be hit by unpleasant surprises when your bank adviser or financial adviser challenges what you thought was a sound budget, because you had not made room for the small day-to-day expenses you had not included in it.
Fill out the contact form so we can talk about how we can help you buy and finance your home.
