2/12/2013 3:30 PM ET|
Banks take aim at rich homebuyers
Many banks are now offering incentives to entice wealthy homebuyers to borrow. But are they worth it for those who can pay cash?
It's the high-end version of a free toaster for opening a bank account: To entice wealthy customers to take out large home loans, a growing number of banks are offering perks worth tens of thousands of dollars.
Luxury-property buyers -- many of whom could easily pay cash -- are getting discounts on mortgage rates, closing costs and "points," which are optional fees borrowers can pay up front in order to obtain a lower interest rate.
Bank of America last year rolled out a 0.50-percentage-point discount on points paid toward mortgages for customers who have more than $250,000 in assets with the bank. Wells Fargo is discounting mortgage rates for some clients who maintain at least $1 million in assets with the bank, including in savings and brokerage accounts. Chase Private Client, whose clients have roughly $500,000 to $5 million in assets, says it reduces closing costs.
The savings can be significant. For example, just reducing the mortgage rate a quarter of a percentage point from 4.05% -- which is the average rate on large private mortgages, according to mortgage-info website HSH.com -- to 3.80% would save the borrower roughly $77,500 over the life of a 30-year, $1.5 million mortgage. That's a lot of toasters.
"Our overall jumbo loan business has increased, which we clearly attribute to the pricing incentives," says Matt Vernon, a home-loans sales executive at Bank of America.
Benevolence isn't driving these lenders to offer discounts. Recent regulations have reduced revenue from fees that banks collect on things like overdrafts and debit cards. To recoup lost revenue, banks are aiming products and services at clients with substantial assets.
Many high-end buyers who receive the incentives take out private-market jumbo mortgages, which in most parts of the country start after $417,000. (In some pricey metro areas, including New York and San Francisco, they begin at $625,501.) Jumbos tend to have higher interest rates than smaller loans, and the loans aren't guaranteed by the federal government.
Banks say that by offering special discounts to wealthy clients, they're trying to encourage customer loyalty. Housing experts say the lenders are giving high-asset borrowers breaks that other shoppers can't get. "The banks in essence are cherry-picking who they wish to offer these lower rates to," says Stuart Gabriel, the director of the Ziman Center for Real Estate at the University of California, Los Angeles. That's largely because these clients present a lower risk of falling behind on loan payments than less-wealthy clients, he says.
So, cash or credit? Homebuyers should consider a few things before jumping at bank incentives:
- How long do you plan to keep your home? For someone who intends to stay for the long haul, consider skipping the upfront discount on closing costs and go for a better mortgage rate. Discounted or waived closing costs may result in a slightly higher mortgage rate. In many cases, the better mortgage rate will lead to greater savings.
- Ask for a better deal. Keith Gumbinger, a vice president at HSH.com, suggests that buyers with sizable assets could ask competing banks about promotions that target high-caliber clients; if a better offer comes through, the buyers could ask their existing bank to meet or beat that.
- Weigh the pros and cons of paying cash. Buyers able to spare enough cash to buy a home outright will save tens of thousands of dollars in interest. If they need access to that cash later, though, it may be harder to get than before the recession, says Stu Feldstein, the president at mortgage-research firm SMR Research. Cash-out refinances, in which borrowers refinance their home for more than they owe, draw down the equity. Most lenders now require at least 20% to 25% of equity to be left in a home after withdrawals.
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Jesusiswatching, I think someone needs to kick you in the "old testament". If your going to quote scripture, at least try to get it right. Have you been drinking the forbidden fruit? As a christian, I must say, you annoy me.
Banks pushing debt like a drug dealer pushes cocaine.
Here’s the question: Which is a bigger threat to your life and welfare?
By the way, this quote HAS ZERO relevance to home mortgages.
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