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.