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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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.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

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.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

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 however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

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*

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 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.

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.