A client applying for a loan for a flat at a bank can receive two offers with different commission or interest rates. One proposal usually presents the terms of a standard mortgage, the other one – a loan with additional products. What is cross-selling in mortgage offers? Does it always mean lower cost of credit? Is it profitable to take out a mortgage in tying?
Cross-selling in mortgage offers – basic information
Only a few years ago, banks could add “obligatory” additional products to mortgage loans. Since the introduction of amendments to the Mortgage Act, when submitting an application for financing, the customer himself specifies which contract option he wants to use. Currently, you can choose a regular loan agreement or take out a loan as part of tying, i.e. cross-selling. The choice of variant affects the monthly expenses associated with the loan and the total cost of the commitment!
What is cross-selling in mortgage offers?
When choosing a mortgage in cross-selling, the client receives more profitable financing terms than choosing the standard offer of a given lender. It can be a reduced or even zero commission, or a lower margin (and thus a lower interest rate). Depending on your loan package, you can get one or both of these benefits at the same time.
On the other hand, when borrowing in cross-selling, the borrower undertakes to purchase and use other bank products , which in most cases … generate costs. What’s more, the very use of individual ones is subject to certain rules, compliance with which is a prerequisite for maintaining discounts. This is an obvious drawback, but the products offered in cross-selling are not always an unnecessary additional cost. For example, a given package may include property insurance, which the mortgage borrower is still obliged to take out.
As part of the cross-selling proposal, one, two, three or more products of a given bank may be attached to the mortgage loan. A loan package can be supplemented by a personal account, credit card, life or apartment insurance, an investment product, or a combination of several of these solutions. In most cases, the bundled offer has a fairly complex structure and involves at least several conditions for reducing commission and / or margin. There are also such proposals, where the scale of the reduction depends on the number and type of criteria met, and this definitely does not make it easier to assess their profitability.
The simplest cross-selling offer: a personal account in a package with a mortgage
A simple and quite popular package offer is a mortgage with a personal account . In this case, in exchange for opening an account and using a debit card, the bank will slightly lower the interest rate on the loan (e.g. by 0.1 pp). The reduction is small, but after several years of repayment, it can bring a total of several hundred zlotys in savings. The mere use of an account is usually free after meeting certain criteria, i.e. most often provided that the card is actively used (making monthly payments for an amount above e.g. $ 500), or ensuring monthly inflows of a certain amount (e.g. $ 2,000).
By having a personal account in the same bank where the mortgage is taken, the customer has easy access to all information about his commitment. After logging into your account, you can check, for example, the remaining loan amount or the current installment amount. If the interest rates change and the bank updates the installment amount, it will be easily verified through the account. Of course, in the event of changes in interest rates, the bank sends a new repayment schedule by post (traditional or electronic).
A popular option: a mortgage with life insurance and a personal bill
Another option of cross-selling is a personal bill with a life insurance policy . Compared to the standard mortgage offer, this combination usually reduces the bank’s margin by a few tenths of a percentage point. This generates considerable savings, but on the other hand, there are high additional costs. They are responsible for life insurance, which you usually need to use for at least the first few years of loan repayment, and often until the end of the loan period.
Sometimes, in addition to a standard life insurance policy, the bank also requires you to take out protection against loss of job and permanent inability to work. Sometimes it is possible that you can opt out of an additional extension after a certain period of time. However, basic life insurance must be used throughout the loan repayment period. The bank cannot force a customer to conclude a life insurance contract – unless he is elderly or he takes the loan as the only borrower.
Cross-selling in mortgage offers – other variants
There are also other, more complex cross-selling variants on the market. The bank that decides to introduce them usually gives you the option of choosing one of several options. In this case, you can have, for example:
- basic package (personal bill, unemployment insurance, credit card);
- insurance package (personal account, credit card, life insurance with comprehensive protection);
- investment package (personal account, credit card, savings program or investment policy).
Some banks, instead of offering credit packages with a strictly defined structure, use a list of conditions that must be met in order to receive a lower commission or interest rate on the loan . In their case, it is usually the case that one or two set conditions are met, and each subsequent one is rewarded with an additional reduction in the margin by a set number of percentage points.
What exactly can the bank expect here in exchange for lowering its margin? E.g:
- opening a personal account and regularly transferring remuneration to it throughout the duration of the loan agreement;
- take out a life insurance policy and use it until the end of the loan period;
- purchase a credit card and pay it with at least one transaction monthly for the next 3 years;
- opening a term deposit for 10,000 dollars and maintaining it for the next 24 months;
- regularly acquiring TFI investment units of a bank and maintaining them for a period of, for example, 24 months.
What results in breaking the terms of the cross-selling offer?
While the criteria, the fulfillment of which entitles them to lower interest rates, can be very different, the effects of non-compliance with the promotion terms are always the same: the bank begins to charge a standard margin.
Some lenders apply strict rules and irrevocably receive all discounts when the customer breaks even one condition of the bundled offer. Others are more forgiving and even if they do not meet several criteria, they only temporarily increase the margin. The loan agreement will always give you detailed information about the consequences the borrower must face.
Regardless of whether you consciously give up a product bundled, or distracted or forgotten, you do not meet any condition to reduce the margin, the result will be an increase in installments and the total cost of the mortgage.
Is it worth using a given cross-selling offer?
If you comply with the terms of the promotion, you get a lower interest rate and / or preparation fee, in other words, you simply use a cheaper loan. The assessment of the actual profitability of a given cross-seling offer requires recalculation and consideration of the costs associated with related products, as well as paying attention to the total cost of the loan. As long as these costs are lower than the profits from the reduction in the margin or commission, the proposal should be considered attractive. Since the calculations that appear here can be quite complicated, you should always consider using the advice of a trusted credit expert.
When considering the selection of a given cross-selling offer, it is worth considering non-cost issues. It is important above all whether the borrower will be able to easily meet the conditions set by the bank. In addition, you need to analyze whether the products included in the package do not raise additional problems. For example, the requirement to regularly pay funds to an investment fund, which will fall after the period of paying mortgage installments, can be troublesome. In practice, it is only when you consider not only the financial aspects but also the issues of the usability of individual solutions that you can assess the profitability of a specific bundled offer.