“We have good arms-length relationships. We aren’t asking for compensation. We are asking for favors. I will go to a president of the bank and say, ‘I want you to present this loan to the board.’ I’m known in the banking circles [for] looking for the best services at the lowest rates,” Demming said.
Recently, Demming had 12 banks bid on a mortgage for a prominent Ohio CEO who is a client. “The bank I usually use beat them all by lowering the rate. They weren’t losing money and they have a prominent person as a client, which isn’t bad for [public relations].”
To ensure neither parents nor kids are stuck with conventional student loans costing 6% to 7%, he and another of the firm’s CFPs work to get bids on more competitive loans secured by clients’ homes.
“By securing the loan with a house, it enables us to get a much better rate. ... I have the youngsters sign legal promissory notes and in some cases we don’t tell them it’s their parent who is the so-called lender. It’s a cheaper way to do things,” Demming said.
Well-meaning clients have also been known to secretly run up significant credit card balances, which comes with a price tag that can top 20%. Demming also prefers to negotiate secured loans to pay off balances when possible.
“Ironically, the client coming in to see me today has a $2 million spread sheet, but made a lot of bad decisions helping their kids by running up $150,000 in credit card debt. A bank president has been helping us find a 6% to 7% loan. The rate is higher because their credit is so abysmal, but it is still better than the 20% they currently pay on credit cards,” said Demming, who said he told the clients if they run up any more debt he’ll go to their house personally and bang on their door.
For other clients, using an inexpensive home equity line of credit (HELOC) to make a planned purchase instead of drawing down assets makes good sense. “We have a retired couple who is a perfect illustration of this. They have no mortgage and an untapped HELOC. We just discussed considering a new deal for the $100,000 of purchases they planned at 2.375% for five years versus paying for it from assets,” he said.
Regardless of the client, Demming minimizes surprises by requiring that all loan officers send loans through his firm. “We’ve learned the hard way” over the years that terms can mysteriously change if his advisors don’t monitor loan documents.
While he admits getting loan bids for clients can be time consuming, he said it is very rewarding for all parties. “We justify it because it allows our clients to control and amortize their debt efficiently. Most of our clients are completely debt free when they retire. We even help kids and grandkids finance their homes. It buys good will. We think there is an appreciation.”