September 7, 2008

The Dread Of Going To A Bank For A Loan

You can turn your home into a bank machine with a home equity line of credit (HELOC). You can generally borrow up to 80% of the equity at prime (currently 4.75%). You skip the hassle of getting approval for loans. You then have instant access to money for investing or spending.

This flexibility is appealing if you have self-control. Otherwise, gorging at an all-you-can-borrow buffet, can cost you more than ordering off the menu.
Bank: "We can lend you $900,000." (meant as an employee benefit)
Employee: "No you can't." (meaning no desire for more debt)
That Was Then
I called the full-service bank which holds our home mortgage.  They were happy when we chose them and thanked us with a gift basket of coffee and a mug with their logo. Over the years, we've paid tens of thousands of dollars in interest. And they've become less friendly. To maintain preferred rates when we renewed our mortgage in 2003, we had to get:
  • a bank card
  • a full service bank account (fees waived for six months)
  • an unsecured line of credit
  • a credit card
For expediency, we did. We didn't use any of these services but now looked like better revenue streams. Last year, we got a letter from our personal banking representative who was to call to discuss additional services. She never followed up on this commitment, which was fine. We didn't want anything else. 

This is Now
To workers, I'm just another drone.
To Ma Bell, I'm just another phone.
I'm just another statistic on a sheet.
--- Bob Seger, 
Feel Like A Number
I figured the bank would welcome an opportunity to lend us even more money. I phoned their call centre to get a HELOC. While there was no charge for setting up a mortgage, there are fees of hundreds of dollars to establish a HELOC. I wanted them waived for four reasons
  1. the bank already had our mortgage and knew about our property
  2. we we had been a good profit source over the years
  3. we were giving the bank an opportunity to lend us even more
  4. we would only have one HELOC, shutting out competition
The call centre did not have the authority to waive fees. They arranged to have an authority in our home branch call me. No one did. When I called the phone centre later, they found no record of this commitment. I'd need to visit a branch personally. 

First Visit In Five Years
I went to the nearest branch, waited a while and then talked to a representative. Banking has changed. In the old days, you were a good customer if the bank had the potential to make money from you. Increasing your capacity to borrow made them happy. Now you're a good customer if you're already a revenue stream and have multiple products (which makes switching inconvenient). To start, you need a bank account --- each type has ongoing charges of some type. 

I asked that the HELOC setup charges to be waived. This question went unanswered as the representative constructed an example of how we could
  • move our mortage there (just renewed at prime less 0.10%)
  • buy an investment property
  • invest: borrow at prime (4.75% tax deductible) and earn 7% (how can you lose?)
I listened patiently. By the time he finished, there was only $80,000 left. That was for future borrowing for emergencies !?!

No Gift Basket
I asked about setup fees again and finally got an answer. If I bought additional products (starting with a GIC with lousy rates), upgraded to credit card with fees and started using the services we had, the setup fees might be reduced by 50%. How could I refuse such a deal? Easily, since a HELOC is merely a "nice to have" item.

I thanked the rep, closed the old line of credit and cancelled the old credit card. Only the mortgage remains. That's fully open and can be easily moved. But may require a personal visit elsewhere. 



John Champaign said...

Thanks for the link! You're totally right (I've been treated the same way by banks). I'm not sure who they want to do business with, but apparently its not people like you or I.

I suspect its people who don't bat an eye when they pay $9.95 for this services, $24.95 for that service and let themselves get nickled-and-dimed into the poor house.

*APPARENTLY* you can get a HELOC setup when you setup a mortgage. The next time you're renewing might be the time to get one without paying fees...

Until then, unsecured LOCs don't have as low a rate, but it still works as emergency money (and is MUCH better than a credit card).

Promod said...

Thanks for your comments, Mr. Cheap.

I looked into bank accounts further --- even ones for students (for my son). You can count on service charges, low interest rates or both. Unless you go to a virtual bank.

Our mortgage just renewed and I did ask for a HELOC but charges applied :(

We do have an unsecured line of credit. The HELOC is intended to replace it.