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How to negotiate and knock $30,000 off your home loan

Lynne Blundell investigates how online home loan comparisons can give you the upper hand in negotiating a great deal.

September 23, 2009

Once you've done the hard work of securing your home loan it's easy to feel as if you're locked in for the next 25 or 30 years. But with some competitive deals on offer right now it could be worth comparing home loans to see if you would benefit from refinancing.

By doing your research you could save thousands in repayments over the term of your home loan and get better terms and conditions at the same time.

Consider the case of Steve who bought an apartment in the inner Sydney suburb of Pyrmont four years ago. Steve still owes $300,000 on his variable loan with a current interest rate of 5.9 percent p.a. This means he is paying around $2,079 per month.

If he compared his loan with current offers online at RateCity, he would find cheaper deals - a 5.2 percent p.a. variable loan, for example, could save him $120 each month or more than $30,000 over the remaining 21 years (assuming the interest rate stayed at that rate).

Do your homework first!
Refinancing is a good option if you benefit in the medium to long-term but there are several important factors to consider. Firstly, you need to check the costs associated with getting out of your current home loan. You may have to pay an exit fee so check this with your lender.

The interest rate is not the only reason to change to a different loan. When comparing home loans make sure you look at the real interest rate not just the advertised rate. Advertised rates do not always include all the loan fees and charges. Some special offers with low interest rates for the first year will revert to a much higher rate in the second year. They may also have high exit fees.

A 2009 home finance survey by Bankwest and the Mortgage and Finance Association of Australia (MFAA) found that people who refinanced did so for a range of reasons.

Commenting on the survey, Paul Vivian, Head of Mortgages and Savings at Bankwest said that while there were many advantages of refinancing, it was not for everyone and the reasons for doing it should be compelling.

"When considering a change in loan, the interest rate is not the only thing to look at," Vivian said. "About 42 percent of the respondents who refinanced said they got better service and 32 percent received better loan terms and conditions or lower fees. One in four people reported that they had more flexibility, and a larger loan or limit," he said.

Negotiate with your existing lender
Refinancing does not always mean changing to a new lender. Two thirds of people who refinanced in the BankWest MFAA survey stayed with their existing lender.

If you have been with your current lender for some time you have a history with them. They also have all of your documentation so this saves on administration costs. If you know your lender is offering some good deals, talk to them about changing from your current loan to one of these deals and compare it to what other lenders are offering.

By doing your research properly and asking plenty of questions your existing home loan will get a thorough health check. You can then make the decision of whether or not to refinance with confidence.

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