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Remember when banks offered customers freebies, greeted visitors with a smile and rewarded people who did just about any kind of business with them?
Well, neither do a lot of people shopping for financial products today.
Borrow where you save
But a select group of retail banking customers -- those looking to open a home equity loan or line of credit -- can still enjoy plenty of perks through a simple maneuver: Getting loans from the same financial institutions that hold their checking, savings and other accounts. They can lower their borrowing price tag by hundreds of dollars.
"We try to make it very clear to our customers that they get special offers by doing more of their business with us," says Dave Anton, vice president of retail credit products with Minneapolis-based U.S. Bancorp. "In terms of reinforcing our overall bank strategy to grow customer relationships, it's been a very effective way of encouraging our customers to borrow."
The home equity business makes bankers salivate these days for two major reasons: Customers who take out loans or lines of credit represent so-called "attractive cross-selling opportunities." And they frequently end up making interest payments for years.
From a financial standpoint, this means banks can easily generate revenue by selling other products to home equity customers. So, they don't mind doling out perks to current account-holders in order to nab them as long-term customers who have several ties to the institution.
"We feel that the home equity line of credit is really the flagship product that will segue ourselves into filling the whole client relationship with the bank," says Kris Walker, vice president of product marketing for BankAmerica Corp.
Banks seek loyalty
BankAmerica is the product of the September merger of Bank of America in the western U.S. and NationsBank in the Southeast, and Walker says account benefits vary by region.
Western customers get checking and savings account fees waived for a year when they take out a home equity loan with BankAmerica, for example. They also qualify for a 0.25 percent interest rate discount by having loan payments electronically debited from their primary account. In both the east and west, customers can obtain a Visa credit card with a discounted rate during promotional periods.
After BankAmerica's services are fully combined, the free checking deal will likely be offered nationwide, allowing customers to save on monthly maintenance charges that now run as high as $20 at the former NationsBank, Walker adds.
Promotions for customers only
In the Midwest and Northwest, U.S. Bancorp customers benefit by staying in-house when looking for home equity products too, according to Anton. Account holders could get a rate of about prime plus one percent -- 8.75 percent in mid-December -- on an equity line of credit, he says. That's 1 percent less than what an outsider would receive.
During promotional periods, customers can also avoid home equity loan closing costs, which range from $100 to $1,000. And, they get free checking accounts that would normally cost as much as $15 a month if they agree to have their loan payments transferred electronically.
"We want to have more than just one account with a customer," Anton says. "Broader and deeper relationships help customers stay with the organization longer, which leads to higher profitability. We also feel that we're giving them a good value."
Ask the mortgage servicer
Customers who have stingier banks may still be able to save by going to the companies that service their mortgages.
That's because the mortgage company might not require a new appraisal or extensive credit verification on the home equity loan, especially if the borrower has a history of making payments on time.
Countrywide Credit Industries Inc., for one, doesn't require appraisals from good-credit customers who have had one performed within the past 12 months, according to spokeswoman Amber Cousins. Based in Calabasas, Calif., Countrywide is one of the largest mortgage lenders in the U.S.
Perks aside, it is the home equity loan's interest rate that matters the most, experts say. They also recommend a close reading of the fine print.
"The bottom line is the rate you're going to pay, and the cost over the long term of the loan," says Patti Houlihan, a certified financial planner with Cavill and Co. in Oakton, Va. "Don't be shortsighted and go for the current day benefit when it's going to cost you more in the long run."
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