The RBA has increased the official interest rate from 0.10% per annum to 2.60% per annum since May 2022. As lenders pass on the rate rises to mortgage holders, many families have been watching as their monthly loan repayments continue to increase month by month. For someone with a $750,000, 25-year loan before the RBA rate rises began in May, they’ll be paying over a $1,000 a month more in loan repayments as a result of the hikes.
By negotiating a lower interest rate with your current lender or switching to a new lender with a better rate, you could potentially save hundreds, if not thousands, of dollars a year in mortgage repayments.
Here are our top tips for negotiating a better home loan rate:
1. Do your research
You need to know:
- What rate are you currently paying?
- What rate is your lender offering to new customers? Lenders usually offer a lower rate to new customers to attract new business. It seems unfair (and it is), but it’s the way the market works.
- What’s the best rate being offered by your lender’s major competitors? It’s important to find the comparison rate on a loan with similar features to your current loan that is being offered by a similar loan provider (i.e. if your loan is with one of the big 4 banks, you should compare it to another big 4 bank). The comparison rate takes into account the interest rate, but also fees and charges that apply.
- Are there any cashback offers being offered for refinancing? This could help boost your case for leaving when you chat with your current lender
2. Understand your potential value to a lender
It’s important to understand that lenders find certain types of borrowers more attractive and are therefore more likely to offer these ‘good’ borrowers a better deal to retain or attract them. Some of the factors that could help your case are:
- Having a LVR under 80%
- Have a perfect repayment history
- Having a large loan size (banks will often fight harder to keep a loan over $1m)
- Having a package loan (compared to a basic product)
Make sure that if these factors apply to you, that you highlight them with your lender in any negotiations to strengthen your case.
3. Start with your existing lender
Once you’ve done your research, call you current lender and make your case. You can ask your lender to review your current loan based on the research you have completed. If you are a ‘good’ borrower (eg excellent repayment history, low LVR etc.), remember to highlight these positives.
Your lender may offer you a better rate if they are trying to retain customers. However, if they are not willing to meet your expectations, you may choose to refinance to another lender who is offering a sharper interest rate.
Final thoughts
At the end of the day, if your lender is not willing to offer you a lower interest rate, consider whether you want to remain loyal to them when you may be able to save money by taking your business elsewhere.
When comparing your loan options, remember that interest rate is only one factor. Remember to also think about what features you need (eg. do you need an offset account? A package loan?) because these features can impact on the fees and the interest rate. You should also consider if your borrowing power is now different due to a change in circumstances (eg. if your income or employment arrangements have changed significantly since you initially applied for your loan).
If you need help to compare options or apply for a loan, you may want to consider speaking to a mortgage broker. This may end up saving you time but keep in mind that a fee may be payable for their services.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. For further information on anything that has been discussed in this article, please consider seeking qualified and professional advice.
Photo by Tierra Mallorca on Unsplash
The Wealth Mentoring Group 