One of the biggest influences on the lifespan of your home loan is the interest you pay on your monthly repayments. If you’re tired of paying a higher interest rate than new customers, and your rates don’t reflect the current market, it may be time to consider renegotiating.
The process of negotiating a lower interest rate on your home loan can be overwhelming, and you feel like it’s not worth your time, but a regular review of your home loan can save you thousands of dollars, reduce financial stress and help you pay off your mortgage sooner when you take advantage of the lowest rates available.
When it comes to savings, even the smallest percentage point counts. A slim 0.25% cut in your interest rate on a $600,000 mortgage could save you as much as $25,000 on a 25-year term, so it really is worth investigating for your financial freedom.
Whether you’re switching banks or refinancing, here are seven tips to help you renegotiate your home loan successfully.
1. Ask for the same rate as new customers
The first step to renegotiating your interest rate is to get in touch with your lender and ask for a better rate. Find out what new customers are being offered, and don’t be afraid to ask for the same.
Some lenders will be very quick to come to the table and negotiate with existing customers, particularly when you have established a solid repayment history with no late or missed payments, and have been with them for a lengthy period of time, reducing your LVR (loan to value ratio) accordingly.
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2. Know the market and research for the lowest rates offered
Before you get started, do your homework and find out exactly what the lowest interest rates are currently, and then decide on the highest rate you are willing to accept going forward.
It’s simple to check your bank’s current rates for new customers on their website or make a quick phone call anonymously to ask them for their best pricing. Most likely, you’ll find your bank is not giving you the same rate that new borrowers receive, and may not even be giving you a competitive rate across the market.
Shop around with lenders and compare rates to see what the competition has to offer you in your particular situation.
You can use this information when speaking with your lender to see if they can meet the prices you’ve been offered and if they’re not willing to negotiate it may be time to refinance with a lender who will.
3. Play the loyalty card
Refinancing was virtually unheard of in the past. Most customers would stay loyal to their bank for their lifetime. These days, refinancing has become easier and gained popularity as people realise they have more buying power and more choice.
Use your loyalty to your advantage when in discussions with your bank. As long as you have a solid history that proves you are a reliable customer, this is a helpful point to mention in your negotiations.
Be aware, however, that being too loyal can work against you. Banks have certain algorithms established that analyse the likeliness of you leaving for another lender. They know that the more products you have tied up with them, the less likely it is you will leave.
If they view you as being too loyal and willing to stay regardless of the interest rates they provide you with, it will prevent you from getting their lowest offer. Banks commonly refer to this customer type as being a “sticky customer”, and they know these customers that have multiple product features with them probably won’t refinance elsewhere.
If you’re serious about getting a better rate, be ready to walk away.
4. Be prepared to switch to another lender
Making it clear to your lender that you are going to refinance with or without them can be all the incentive your bank needs to offer you a more competitive deal. Show them evidence of any attractive offers you may have received from competitors, so your existing lender can match it or beat it.
If they reply with a counteroffer, be prepared to reject it and ask to speak to their manager if it’s less than what you’re willing to accept. Sometimes, it comes down to playing hardball. If you really want them to know you mean business, request they send you the discharge form. If they see they’re going to lose a loyal customer, they might just fight to keep you.
If your lender is still not prepared to make you a better offer, then there’s not much reason to stay, and you will likely be better off financially by refinancing.
You might also like: How to Know When to Refinance Your Home Loan
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5. Show them you’re the ideal borrower
As mentioned previously, a borrower with an excellent credit history that pays on time and has managed to decrease their LVR is in a much better position to renegotiate than someone who has missed or late repayments on their mortgage.
Having secure employment and a good credit score are points of leverage that will show you’re a client worth keeping. When self-employed, owing more than 80% of the property, having a low credit score, or being a non-resident or investor, your chance of benefiting from a lower interest rate is significantly reduced.
You might also like: What Determines the Actual Interest Rate you Receive?
6. Maximise your discretionary discounts
While many lenders don’t offer transparent pricing, shopping around can be a time consuming and arduous task. If you don’t want to haggle and pour through the various offers, fees and packages to determine whether you will actually be better off, you can use the services of an experienced mortgage broker to negotiate on your behalf and use pricing requests.
Mortgage brokers already have existing relationships with banks, and can assess the best deal for you. Banks are aware that mortgage brokers can make it easier for you to switch lenders so they are more likely to offer their best rate from the get-go than lose you as a client.
If you’re doing it on your own, remember to weigh up the upfront and ongoing fees when calculating the best rate.
7. What can’t be negotiated?
While many lenders do have flexibility with mortgage interest rates, usually there is an endpoint where they will not budge. They can, however, offer certain perks like waiving annual fees or backdating an interest rate update that will be enticing, so it’s worth enquiring about these solutions.
Here are some instances when lenders won’t negotiate:
- They can’t give you a discount that their core banking system won’t allow
- Major banks including the big four don’t differentiate their rates much to avoid price wars.
- Some lenders refuse to negotiate their home loan rates at all. For instance, ING Direct.
Words by Katy Holliday
Want a lower interest rate on your home loan? Refinancing might be an option. Contact eChoice and we’ll put you in touch with one of our friendly mortgage brokers who will be able to help guide you through your options and find you the right deal.