How to talk your way to a lower interest rate

How to talk your way to a lower interest rate

If you’re currently paying off a mortgage, there’s an interest rate cut waiting for you if you simply ask for it.

Negotiating with your bank for a cheaper home loan may seem like an intimidating task that only a financial expert could manage, but you’d be surprised at how easy it is. Simply put, anyone can talk their way into a cheaper home loan, they just have to know what to say.

Borrowers need to shop around and be prepared to walk away if their lender doesn’t offer them the discount they deserve.

RateCity tips to haggle for a cheaper home loan: 

1. Find your current interest rate

Many people aren’t aware of their current interest rate, particularly if they’re paying a variable loan. Your first step to haggling for a better home loan rate is to work out your current one. It should appear on your bank statement, through online banking or your banking app.

2. Are you an ideal borrower?

If you’ve been paying back your mortgage for a while there are a few factors that should present you as an “ideal” borrower, meaning you are more likely to nab a lower rate.

More ideal borrower
  • If you live in the property
  • If you own 20 per cent or more of the property
  • If you are employed full time
  • If you are paying principal and interest
Less ideal borrower
  • If you are an investor paying for an investment property
  • If you have missed mortgage payments
  • If you are paying interest-only
  • If you still owe more than 80 per cent of the loan

 

If you tick one or more of the less ideal borrower traits, this doesn’t mean you won’t be able to haggle for a lower rate! It’s just worth keeping in mind that your bank may already be charging you a comparatively higher interest rate.

Also, there may be elements of your loan you can change to present yourself as an ideal borrower, and ultimately give yourself more bargaining power when you ask for a lower rate.

3. Research your own provider’s rates

Most home loan providers offer lower, more enticing rates for new customers. But why should new customers be rewarded with lower rates when you’ve shown loyalty to your home loan provider?

The best way to find these discounted rates is to check your bank’s website, check RateCity’s home loan tables or even call your bank pretending to be a new customer to learn what discount rate they offer.

Example:

Nick is currently paying the Westpac standard variable rate on the Rocket Repay Home Loan of 5.24 per cent. He logs on to the Westpac website and sees that they are offering a special offer for the Rocket Repay Home Loan of a discount of 60 basis points, reducing the interest rate to 4.64 per cent. However, Westpac states that “discounts do not apply to internal switches”, meaning this lower rate is for new customers only.

When you arm yourself with these lower rates from your provider and their competitors, you’ll have a much stronger argument when asking for a cheaper rate. After all, why should new customers pay lower rates on your home loan or similar products? If your bank is willing to let other customers pay a lower rate, they should be willing to let you do so too.

4. Research competitor rates

There is a wide range of Australian home loan providers who are willing to charge their customers lower interest rates, including your current provider. Before you call up your provider requesting a lower rate, it pays to do your research.

The average owner-occupier variable interest rate was 4.66 per cent (as at January 2018). If you’re paying a higher than average interest rate on your mortgage, it’s crucial you look outside of your provider. 

Use RateCity’s home loan comparison tool to find the lowest rates offered across the market.

 

 

 

5. Present all your research

Once you have gathered all your research you should be ready to talk to your home loan provider.

Let them know you want a lower rate, because:

  • You are a reliable borrower for one or more reasons listed earlier, and a loyal customer of theirs.
  • Existing borrowers are paying lower rates (provide examples) and you don’t think it’s fair that loyal customers aren’t being treated the same.
  • Their competitors charge a lower rate for a similar loan types, and that you’re not afraid to refinance.

Keep in mind…

Some home loan providers need you more than you need them. They profit from the fact that most Australians are too scared to ask for a lower rate, and they’re always more likely to offer you one instead of letting you walk away.

6. Call their bluff

News Corp personal finance writer, Sophie Elsworth, is an expert at haggling for a cheaper home loan. She emphasises the importance of knowing your worth as a customer, and not being afraid to call their bluff if needs be.

Asking for a mortgage discharge form is a great way to show you mean business. And at the end of the day, if your home loan provider is still not willing to offer you a lower rate you should be prepared to refinance; if this is a financially viable option for you.

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Low rate loans on the market: 

Home Loan Provider

Home Loan Product

Comparison Rate

Mortgage House

Moneyer – Pure & Simple Summer17

3.44%

Freedom Lend

Freedom Variable Home Loan

3.49%

Reduce Home Loans

Rate Lovers Variable Home Loan

3.49%

Homestar Finance

Variable Rate Home Loan

3.53%

loans.com.au

Essentials Home Loan

3.54%

RateCity data: Owner-occupier variable rates paying principal and interest as at February 2018.

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

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.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

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.

 

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. 

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

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. 

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 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.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.