When it Comes to Borrowing, Relationships Matter

Business owners looking for certainty will have to look long and hard in most cases. But here’s perhaps the closest thing you’ll find to a sure deal right now: Interest rates are likely to remain at historic lows throughout this year and well into 2014.

Events change things, so the Federal Reserve may be tempted to alter that trajectory in the face of economic unknowns. But its stated position is that it will keep rates down until unemployment drops to 6.5 percent, now projected for mid- to late 2014—if we don’t fall into recession, that is. Business owners and executives in a position to comfortably service new debt would be wise to consider the best way to leverage those low rates while they last.

But there’s more to the potential savings than just low rates themselves, especially where loans are collateralized with real estate. And that’s where business owners can realize additional savings, whether they’re acting in their professional or personal interests.

Residential Lending

Start with personal interests, like a home loan. When it comes to home loans, they are typically underwritten by a bank, a mortgage company or through a broker. In many cases, those loans will be sold into the secondary market. Home-owners may pick their lender or mortgage broker after considerable due diligence, but once that paper is resold, they’re tied to a third-party lender who will be servicing that relationship until the loan is paid off entirely or refinanced through another lender. Often, that creates a one-way relationship—you send in a check every month, and the lender cashes it. That’s why it’s important to understand how the lending markets work.

The main driver for the resale of those loans is to minimize the bank’s exposure to long-term risks should interest rates become more unpredictable. For now, though, spurred by the current low rates, many homeowners have jumped back into the lending market.  Borrowers need to consider the potential savings versus the fees that can be associated with the mortgage process.

How can you save more?  Some lenders that are committed to relationship banking will keep those loans as part of their portfolio. They’ll be around to service those loans, answer questions you might have over the years, and potentially give their valued clients a break when it comes to future refinancing issues, either with better rates or fees that might be reduced—even waived altogether. There are other ways they can reward clients for their loyalty, often through banking services that include discounts on loans, cashier’s checks, ATM usage, insufficient-funds charges or other services.