Should you switch or negotiate a better rate?

Should you switch or negotiate a better rate?

Refinancing your home loan is a significant decision, and one that’s worth giving some proper consideration before taking the plunge. By following RateCity’s six-step process, you can accurately assess the current state of your personal finances, where you would like them to be, and determine whether switching from one lender to another will ultimately be worth it.

While you’re in the process of comparing the interest rates and financial services offered by other lenders, it’s often worth also looking at what your current lender is offering, and considering what else they could provide in the future. Could you ultimately be better off by sticking with your current lender rather than jumping ship? When is it a better idea NOT to switch your home loan?

Can you reach your refinancing goal with your current lender?

The needs of borrowers change over time. A first home buyer may enter into a mortgage with the goal of keeping their costs down and building up their equity, but after a few years they’ll be ready to put this equity to work, whether to finance a renovation to their existing property, or to upgrade to a new home that can more easily house their growing family. This could mean that a refinance may be on the cards.

If your circumstances change and your existing home loan no longer fits your financial requirements, it may be worth getting in touch with your existing lender to see if they can make the changes that would would be required to let them keep your business, whether that’s lowering your interest rate to make your mortgage more affordable, or adding extra features and benefits to your loan to provide greater value for your money. Many lenders will be willing to make certain concessions to their standard home loans and policies if it means you will remain a loyal customer.

Are the switching costs too much?

Depending on the lenders involved, switching home loans can be an expensive process. Some lenders who offer low interest rates charge high fees on their mortgages to compensate, including up-front establishment fees, and there are also other costs such as stamp duty to consider. 

Refinancing home loans with no upfront fees:

 

If your current home loan has an interest rate that’s been fixed for a set period of time, breaking away from the loan during this period could incur some significant break fees, which can make switching loans a less attractive prospect.

And if you haven’t had your existing loan for long enough to build up a substantial amount of equity, you may not have enough available to serve as a deposit to secure a new loan when refinancing. This would mean that you’d have to pay Lender’s Mortgage Insurance, which can prove quite expensive.

So even if a new home loan looks much more affordable than your existing one in terms of its monthly repayments, if making the switch will cost you more than you can realistically afford at present, or if it will take too long for you to break even and start saving money on your loan, renegotiating the terms of your existing home loan with your current lender could prove to be a more attractive option.

How to negotiate a better rate

Get the facts on the competition

Your first step should be to gather up the details of home loan offers from other lenders to compare against your existing deal. This can show your lender that you’re serious about switching home loans, and help encourage them to make a suitable counter-offer.

Get the facts on your current lender’s new home loans

Many lenders offer low interest rates on new home loans in order to attract new customers. If your current lender is currently offering cheaper or more attractive home loan deals, it can be worth bringing these rates to the negotiating table to see if your continuing business is just as valued as that of a new customer. Just keep in mind that some discounted “Honeymoon Rates” offered to new home loan customers are strictly temporary only, and don’t reflect the lender’s ongoing interest rates.

Make sure you qualify

Lenders tend to offer their most attractive home loan interest rates to customers that represent the safest financial risks – borrowers with steady incomes, full deposits, and spotless credit histories. If your income isn’t consistent, your equity is limited, or your credit history is less than ideal, then you’re less likely to qualify for one of these low-interest mortgages. Comparing your current loan to a loan that you’re unlikely to qualify for could risk undermining your negotiation.

Be clear about your goals

While simply paying less in interest to save money and get a better deal is a worthy financial goal in itself, you may have better luck in your negotiation if you can provide your lender with a reason for wanting to refinance, such as unlocking your equity to afford renovations, or consolidating your other debts into your mortgage. This can help to give your lender a better idea of which loan options will offer you the greatest value, and streamline the negotiation process.

Find out if you can get more value for your money

You may be in a situation where you can afford the repayments on your existing mortgage comfortably enough, but you don’t feel that you’re really getting enough bang for your home loan buck. Rather than negotiating down the interest rate, find out if your lender would be willing to bundle value-adding extras into your existing home loan package, such as access to other financial services, or convenient features such as offset accounts and redraw facilities.

Make sure you talk to the right people

When you get in touch with your lender to negotiate a new interest rate, your success could partially depend on who you speak to. For example, the branch manager at your local bank may not have the authority to make drastic changes to your home loan’s terms, at least not without contacting head office first.

If you call your lender and tell them you’re hoping to refinance your home loan, you should be transferred to a customer retention specialist, whose job description is based around keeping customers like yourself happy with the lender’s services. These specialists are more likely to be able to provide incentives to encourage you to stay with the lender, such as making your home loan more affordable or offering greater value for your money.

Be realistic

Sometimes a lender simply can’t match what the competition is offering. For example, a large bank may not be capable of providing interest rates as low as some online-only non-bank lenders, as their operating expenses and costs for maintaining their branches are simply too high. When using other loans as examples when negotiating, it’s usually best to compare apples with apples, or at least lenders with similar lenders.

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Learn more about home loans

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

Can I get a home renovation loan with bad credit?

If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan. 

Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it. 

Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

How long does ANZ take to approve a home loan?

The process of applying for a home loan usually stays the same across all lenders. On the other hand, the time it takes for a lender to approve the home loan differs from lender to lender. When it comes to ANZ, it takes anywhere between 15 to 18 business days to approve a home loan from the day of the application to approval. This timeframe is highly dependent on the credibility and availability of your documentation. You can apply for an ANZ home loan in two ways; a Quick Start home loan application or a full online application.

If you opt for the Quick Start home loan option, you’ll need to fill out a form with basic details. During this stage, you don’t need to add any supporting information. An ANZ representative will then call you within 48 hours. The representative will help take your application forward, including assessing all relevant information, documentation and conducting a credit check.

You can also submit your entire home loan application with ANZ online by filling out a comprehensive form with all the information and documentation needed.

Once ANZ has conducted the preliminary checks, you’ll be informed of the pre-approved amount they’re willing to offer. Based on this amount, you can set a budget for your property search and make sure you stay inside your budget. Pre-approval will last for three months but can be extended by applying with ANZ if you don’t find a property. But it’s best to find a property as soon as possible as ANZ may decide to change the amount if your financial situation changes.

After you find a property and have your offer accepted, ANZ may send an assessor to the property to verify it’s value. If everything is per their terms and conditions, ANZ will finalise your home loan’s approval and release the funds.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings