Recently, negative headlines have appeared about how banks “cross-sell” you additional products and services. But cross-selling isn’t always bad for consumers – and, in fact, when it comes to mortgage cross-selling, there are some compelling benefits.
Here’s a look at what cross-selling is, and how to know when it can help or hurt your finances.
What is cross-selling?
Cross-selling is when your financial services provider sells you a new product or service beyond the one you have or are asking about.
This can happen when you’re an existing customer, like when your monthly mortgage statement includes a promotion for a new credit card.
Or it can happen when you’re a new customer, like when you’re applying for a mortgage and you’re asked if you’d like to open a checking account from which to auto-debit the monthly mortgage payments.
How cross-selling works
Cross-selling is a basic sales premise we encounter often in our daily lives. If your waiter offers a wine selection to go with your entree, that’s cross-selling. If your automated gas pump asks if you’d like a car wash, that’s cross-selling. And if your banker asks you if you’d like overdraft protection to go with your checking account, that’s also cross-selling.
The difference with financial services is that the products are more complex, and the fine print associated with each offering can lead to unwanted fees and/or products.
Overdraft protection is a great example. If a transaction will overdraw your checking account, overdraft protection enables the bank to draw funds from another account to cover the overage. Cue the bank representative: “Don’t have another checking account? Let’s open one for you right now!”
In this scenario, you’d then be asked to sign or verbally consent to terms and conditions for the new account. Before doing so, you must press your banker to explain:
- Low-balance thresholds and fees for both accounts
- Overdraft transfer fees
- Other possible fees
- Conditions that bundle other products with the one being offered
- Conditions that permit the bank to add other products without obtaining new consent from you
Best practice is to never agree verbally, and instead ask for full terms and conditions in writing before you agree. It’s less convenient, but it will help you avoid unnecessary fees, unwanted products, or both.
The good news with mortgages is that strict laws prevent you from going forward with a loan application until you receive and sign very clear mortgage disclosures detailing the rate, loan terms, line-item fees, and cash needed to close.
But you will still be subject to cross-selling in the mortgage process. Here are some facts about the most common mortgage cross-selling practices. These can help you determine whether mortgage cross-selling actually benefits you, and which questions to ask to make sure.
- Lower mortgage rate with checking account. If you open a checking account from which the the monthly mortgage payment must be be auto-debited, many lenders will offer a lower mortgage rate. Opening a checking account to save interest cost over the life of a mortgage can be worth it, if the rate discount is good enough. Make sure you understand low-balance thresholds and fees on the checking account, and double check whether your mortgage rate can rise if you decide to cancel the checking account
- Lower mortgage rate for larger deposits. If you move money into new deposit or asset management accounts before you close your mortgage, many lenders will offer a lower mortgage rate – but how much lower depends on how much money you move to (or already have with) the bank. Your loan officer will tell you the rate discounts associated with different deposit levels. Ask if you can combine this discount with the checking discount noted above. Also, double check whether your mortgage rate can rise if your deposit/asset account balances ever go below the threshold that was required for the rate discount.
- Portion of credit card spending pays down mortgage. If you open a credit card, some lenders will credit a certain percentage (often around one percent) of annual spending toward paying down your mortgage. As with all credit card products, there is a lot of fine print, so if your loan officer offers this option to you, ask to review everything in writing before agreeing. If it’s a fit for you, it can be a nice incentive for credit card spending you’re already engaged in.
- Open a home equity line of credit (HELOC) with your mortgage. HELOCs are a convenient way to access your home’s equity. They’re a second mortgage, and you can put one in place with a zero balance, and use a credit card or check to spend the funds when needed. You only make payments if you establish a balance, and the rate can be variable or fixed. Ask your loan officer to document rate options, as well as fees to open and close a HELOC. Also, note that having a HELOC can make it more difficult to refinance your first mortgage down the road – but this depends on each person’s profile, so ask your loan officer to explain this to you.
And finally, once you’ve established whether a mortgage cross-sell product is appropriate for you, it’s good practice to ask your loan officer whether they get paid on the non-mortgage products. It will help you gauge whether they’re doing the right thing for you – or the right thing for them.
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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.