How to get the most out of your banker

How to get the most out of your banker

There are good bankers and there are bad bankers.  A good banker can be extremely helpful.  My definition of a good banker is someone who:

  • Has several years of banking experience, has high limits, and intuitively knows by a glance what loans might be approved and at what rate,
  • Thinks of you as their client who puts your interests ahead of theirs (other than making sure for the bank that you are a good risk),
  • Spends time to really understand your situation,
  • Presents your situation in the best light for best chances of being approved (and knowing in their mind that there is a very good chance of your being tentatively approved),
  • Knows how to overcome any obstacles to get your application approved,
  • Provides an offer that is very fair and on good terms


Benefits of advanced preparation

To get the most out of a banker, you have to be very well prepared.  You should be so well prepared that the approval is more of a formality.  The funny thing is that most of the things you need to do to be well prepared, you almost have to do anyways as part of the loan process.  The difference here is you’re taking the initiative and doing it before it is asked of you.  By doing so, you:

  • can overcome most or all obstacles by fixing the problems in advance that would otherwise result in a decline (or almost as bad, an approval but at a terrible rate or bad terms),
  • you look professional and the banker looks at you more favourably – possibly feeling you are a lower risk client, and
  • you can get rates and terms significantly better than if you don’t prepare (I have been stunned by just how much lower the rates have been, have seen all sorts of fees and costs taken out, and by shopping around terms from stranger banks [without a pre-existing relationship] significantly better than from the bank they’ve dealt with all of their life).


Your homework

So let’s take a look at the kind of things you might put together before walking into the bank appointment:

1)   Your financial summary

  • balance sheet (what you own and owe) with statements behind confirming all figures:

–        property tax statement for each property you own,

–        most recent investment account statements (RRSPs, RRIFs, TFSA, personal investment accounts, etc.); note that some places consider a portion of your RRSPs/RRIFs as income; many banks take your investment income from your personal accounts as income,

–        bank account statements,

–        other valuable assets that can be sold,

–        for each debt/loan – the most recent statement plus details on each loan (so they can see the rate, monthly payments, amortization)

–        list all credit cards and limits (funny thing is that credit card limits have been going up and can eat into your loan capacity); eliminating a credit card or two could make the difference between a decline and approval; you should always pay them off in full every month

  • income statement (income less categorized expenses; the bottom should be your average monthly savings after-tax); income should be itemized by source and indicate amount


2)   Summary of your work situation including:

  1. a) what you do,
  2. b) how many years you’ve been doing it,
  3. c) recommendation letter from employer (it is a bonus, but it can confirm you work there, that you are a good worker and that your employment prospects are good), and
  4. d) proof of income for three years of:

–        T4,

–        jacket of your tax return, and

–        notice of assessment

  1. e) should your work be incorporated or if have a family trust, you need to prepare those tax returns, notices of assessment, balance sheet and income statement, ownership info, and other pertinent info.


3)   Your proposed borrowing (has to be reasonable):

  1. a) amount of borrowing
  2. b) how much you are putting down (so they can calculate the loan to value) for the asset purchase
  3. c) credit facility structure (eg. Mortgage, Unsecured loan, Line of credit)
  4. d) proposed rate; eg. 5 years closed at 3.0% with 10 year amortization; or for an open loan the rate, like Prime %


4)   Cash flow statement showing how you will repay over time and how many years (i.e. what’s a reasonable amortization?)


5)   Banker ratios (loan to value, GDS, TDS)

They are going to run them anyways, so you might as well show you are within the limits so they don’t make a mistake and also show you don’t need them


6)   Other supporting documents such as:

  • business plan,
  • financial / tax plan
  • your credit report (which better be good; any issue you better have a good reason),
  • builder license if you are going to build and act as general contractor,
  • permits,
  • lot plan,
  • architectural plan


Approaching the bank

Never have in mind to just make one loan application to one bank – this is a negotiation.  You must approach more than one bank or you’re doing yourself a disservice.  The first bank should not be your main bank.  Your goal is to get a tentative approval from someone else.  You are going to use this first loan application process to make sure you covered all bases in your documentation and to put you in a better negotiating position when you talk with your main bank.

Once you have a tentative approval and improved your proposal, you are now ready to “do battle” with your main bank.

Your main banker should know you are already approved but, “because of the long standing relationship with them you are coming to them as a courtesy to see if they can do better since they know you”.  Note: When they run your credit history, the competing bank credit check will come up.

Let your main banker know that you hope they can do better as you’d otherwise have to move all your business over to the other banker – bank accounts, credit cards, loans, investments, etc.  And you’d feel morally obligated to do so since the other guys barely knew you.


Involve a financial planner

A good financial planner can help you:

1)  save you on interest costs and avoid unnecessary fees (eg. don’t buy the bank mortgage life or disability insurance – click here to see why,

2)      suggest ways to make your interest on borrowings tax deductible,

3)     structure your investment and loan so that it will help manage future family taxes or better achieve your estate planning goals – like minimizing exposure to US Estate taxes, foreign inheritance taxes, and Canadian income taxes (eg. consider how a valuable family cottage might be owned through a Trust where an adult child is beneficiary so that the property qualifies as their Principal Residence),

4)   manage business liability of company family assets (eg. like having investments done through a separate family company which doesn’t expose assets to business liability).


Tied Selling

Section 459.1 of the Bank Act prohibits banks from practicing coercive tied selling.  It is against the law for a bank to impose undue pressure on, or coerce you, to get their product or service or require you to move business to them, as a condition for obtaining a loan or other product or service.

In other words, the banker cannot tell you that the bank will approve your mortgage only if you transfer your investments to the bank or its affiliates.

It is best to keep your investing with the investment professional who will do the best job for your financial planning and investing.


The Next Step

If you would like a no-obligation referral for your mortgage or other loans or if you’d like a second opinion on your investments and financial plans, please contact me by calling: (604) 288-2083 or by email:  I’ll provide the referral at no cost for a non-client.

As a financial advisor with more than 20 years experience, it might be worthwhile to see what you might be missing out on.

If you have at least $250,000 to invest and would like to develop a pension of dividend paying stocks to meet your retirement living needs, please contact me.  I provide financial planning at no extra charge to my clients.

Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.

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