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Five steps to negotiating a better home loan rate

Five steps to negotiating a better home loan rate

Note

These tips were as seen on Ch10’s morning show. For clarification on how much you can save by refinancing based on your existing loan size, see our tables below. Note some people with small mortgages might only save thousands as opposed to tens of thousands.

Home owners could save tens of thousands of dollars by asking their bank for a rate cut or switching to another lender, particularly if they switch to a lender with a fee-free product.

A staggering 75 per cent of Australian mortgage holders have their home loans with the big four banks – CBA, Westpac, ANZ and NAB.

Over the last six months we’ve seen every major bank hike rates out-of-cycle, with the exception of NAB, which begs the question, is your big bank delivering you value for money?

Many Australians don’t like the idea of refinancing to another lender, but what a lot of people don’t know is that you can actually haggle with your existing bank to try and secure a rate cut, even as an existing borrower.

First of all, do your research. Find out what other lenders are offering new customers. It’s always worth calling a few up to make sure the loan you are looking at is a good fit for your needs and get more details about the benefits of the loan.

Then, call your bank. Present them with the evidence and see if they’re willing to negotiate with their loyal customer (that’s you).

If they aren’t, then you’ve already started the research to switch.

While switching can involve a bit of paperwork, the financial benefits will often stack up in your favour, particularly if you move to a low rate, low fee lender.

If you are on a ‘discounted’ package rate with a big bank, you’re probably paying an annual fee of $395. Switching to a fee-free lender can help you save significantly more. Switching to a low rate, fee free lender is likely to be even better for your finances.

Impact of a 0.50 per cent rate discount

Loan size

Savings over life of loan (ex-fees)

Savings if you switch to a fee-free product

$400,000

$33,687

$43,030

$750,000

$63,164

$72,556

$1,000,000

$84,218

$93,611

Impact of a 0.20 per cent rate discount

Loan size

Savings over life of loan (ex-fees)

Savings if you switch to a fee-free product

$400,000

$13,586

$22,963

$750,000

$25,473

$34,851

$1,000,000

$33,964

$43,342

Impact of a 0.10 per cent rate discount

Loan size

Savings over life of loan (ex-fees)

Savings if you switch to a fee-free product

$400,000

$6,811

$16,184

$750,000

$8,514

$17,886

$1,000,000

$12,771

$22,143

Notes: Rates are based on the major banks package rates as recorded by the RBA statistics Sept 2018 of 4.55% for an owner occupier paying principal and interest. Calculations are based on someone switching five years in to a 30 year-loan. Major banks package fees are estimated at $395 / yr based on an average of the big four package fees. Discharge fees included.

Steps to negotiating a better home loan rate

If you believe you’re paying too much with your mortgage repayments (let’s be honest, most probably are), it’s important to remember the best way to arm yourself for a negotiation is with information.

There are a few simple steps you can follow to negotiate a better rate with your bank. 

  1. Look at the competition – Utilise RateCity’s comparison tools to search and compare lower mortgage rates on the market. You’ll be amazed at what rates are available. 
  2. Find out your bank’s new customer rate – Banks often offer new customers lower rates that their loyal ones. If your bank is charging you more, ask them to match the lower rate.
  3. Speak to the right people – When you call up, ask to speak to a customer retention specialist. It’s their job to keep you happy (and on the books).
  4. Remember the three magic words: mortgage discharge form – You’d be surprised how quickly a lender is willing to lower your mortgage rates if you ask them for a discharge or refinance security form.
  5. Be prepared to leave – If your bank won’t budge, maybe you should. Reach out to one of the lower rate lenders you’ve found through your search and consider refinancing. 

Bonus tip – Tweet to get your bank’s attention!

If you’re finding yourself stuck in a cycle of customer service call-backs, reach out to your lender through social media. Tweets get attention!

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Fact Checked -

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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Learn more about home loans

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.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

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.