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How to negotiate a better home loan rate

How to negotiate a better home loan rate

They say that if you don’t ask, you don’t get, and the same is often true of a lower rate home loan. If your mortgage repayments are starting to overwhelm your household budget, it may be worth considering negotiating for a lower rate.

If the latest news predicting future rate hikes has your budget in a spin, you’re not alone in feeling helpless. However, there may be tangible steps you can take to get back control of your home loan debt and reduce the pressure on your household budget.

It may feel intimidating for some homeowners, but you’d be shocked just how easy it is to talk your way to a lower home loan rate if you have the right ammunition and script to follow.

It may be as easy as picking up the phone and asking.

How to negotiate a lower rate for your home loan

Step 1: Are you in the best position to haggle?

Before you begin the negotiations, you may want to take some time to ensure your financial situation is in its most ‘ideal’. Home loan lenders typically reserve their most competitive interest rates to ‘ideal’ borrowers.

That’s not to say you still can’t negotiate a lower rate if you don’t meet these criteria, but it’s worth knowing how many you tick to boost your argument. Plus, if you’re meeting all the below criteria, you may already be paying your lender’s lower home loan rate offering. In that case, you may want to instead consider refinancing as opposed to negotiating.

Being an ideal borrower may include:

  • Living in the property (versus being an investor)
  • Reducing your loan-to-value ratio (LVR) to 80% or below
  • Being employed in a full-time role for more than 3-6 months
  • Not having missed a mortgage repayment
  • Paying principal and interest

  • Unsure of your current interest rate? It should appear on your home loan statement, through your online banking platform or banking app.

Step 2: Research your current lender’s rates

Your next step will be to hop online to your home loan lenders website or use RateCity’s search tool, to find what rates your lender is currently offering new customers.

Generally speaking, a home loan lender will reserve its most competitive rates for new customers to entice them to apply with that provider. If you’ve been with your lender for a few years, you may currently be paying a higher rate than these new customers.

This may be especially relevant for borrowers previously on fixed rate terms that have reverted to a lender’s standard variable rate. The standard variable rate can be a lot higher on average.

You can then use this knowledge as part of your negotiation when you speak to you your lender and request a rate reduction.

Step 3: Research competitor interest rates

It isn’t always enough to come armed with how much more your lender is charging you in interest than new customers. It’s also worth doing a little research into what lower rate home loan options may be available for your loan amount and financial situation.

Hop on to RateCity’s comparison table and enter your current loan details in the filter, such as your loan amount, property value, whether you’re paying principal and interest or interest only etc.

You’ll then be shown a list of home loans available across the market that may be compatible with your mortgage. Take a screenshot or write down this list and use it as backup for your negotiation.

After all, if your bank won’t reduce your rate because new customers are paying less, then mentioning their competitors is a great way to get their attention. Plus, if they still refuse to change your rate at the end of the day, you now have a list of potential options to consider refinancing to.

Not sure how to compare home loans? There are a few key factors you may want to look at:

  • Interest rate – determines how much interest you may be charged on top of your loan amount.
  • Comparison rate a more “realistic” interest cost that factors in some of the potential fees, based on a 25-year, $150,000 home loan.
  • Fees – It’s more than interest that will sting you. Fees, such as application fees, ongoing fees and exit fees, will add to the cost of your home loan.
  • Features – Lenders may offer helpful features such as the ability to make extra repayments, an offset account, a redraw facility or split interest rate payments. All of which may influence the interest rate you are offered, as a ‘no frills’ home loan may mean a lower interest rate.

Step 4: Begin negotiations

You have all your ammunition with you, including:

  • Why you are an ideal borrower
  • How much more you’re paying as a loyal customer versus new customers
  • How much less competitors are charging

Now is the time to pick up the phone and call your lender. Whichever team you are directed to, be firm (but polite!) that you would like to request a home loan rate decrease. Then, begin listing the above information. If they won’t budge after you mention new customer rates, bring in your big list of lower rates offered by competitors.

If your provider still won’t budge, it’s time to mention the three magic words: mortgage discharge form. Let your lender know that you are serious about getting a lower interest rate and that you are prepared to switch lenders if they won’t play ball.

Keep in mind that some home loan providers need you more than you need them. They are literally banking on you never speaking up and requesting a rate decrease. If they want to retain you as a customer, they should be able to cut your interest rate.

Haggling for a home loan script

“Hello, my name is John Doe and I’d like to speak with a customer service representative about my home loan interest rate. I have been a home loan customer for X years and would like to request an interest rate reduction.

I’ve seen that you are currently offering new customers an interest rate of X.XX%, and this is XX% more than I am paying. I do not think it is fair as a loyal customer that I am paying so much more.

I am a reliable and ideal borrower because I have never missed a mortgage repayment and have reduced my LVR to XX% over the years [insert your reasons]”.

If they won’t budge

“I’ve done some research online and seen that your competitor Big Bank is currently offering refinancers like me an interest rate of X%. Are you still not prepared to reduce my interest rate?”

If they still won’t budge…

“I’d like to request a mortgage discharge form then to begin the process of refinancing. If you won’t take care of a loyal customer like me, why should I keep my home loan with you?”

The cost of refinancing

Be aware that switching home loans can be a costly exercise, so make sure you find out all the fees and charges involved to exit from your existing loan as well as setting up the new one.

Also ensure that if you refinance, you don’t end up extending your loan term as this can result in paying tens of thousands of dollars more in interest.

Use our Refinance Calculator now to see how much more you may save by refinancing to one of the competitive home loans from your research.

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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