Many home loan holders are perplexed about their lender not passing on rate cuts when they occur. These home loan holders are either being given a partial rate cut, or in some cases, no rate cut at all. This often means that they are paying more for their mortgage, per month, than the average market rate, and that they feel their lender is not offering them a fair and reasonable deal. But, this may not always be the case. Let’s look at the lending market in greater detail to understand how this market operates.
The Mortgage Market
The official cash rate is set by the Reserve Bank of Australia (RBA). This rate is the borrowing rate for banks and other lenders around the nation. This means that when you take out a mortgage, your lender borrows money at the official cash rate to fund your loan. Your lender then makes a profit by lending you this money at a higher rate. So, if you took out a home loan when the official cash rate was much higher, then your lender paid more to finance your loan. This is why some lenders are reluctant to pass-on rate cuts. However, if you feel you’re not being looked after by your lender and your existing home loan is costing you too much, then you can elect to change home loans, or even lenders, to get a better deal.
Your Options if You’ve Not Been Given a Rate Cut
If your lender has failed to pass rate cuts on, then it’s time to negotiate a better deal. To do this, follow these steps:
1. Review your home loan – Conduct a health check on your existing home loan. Know what rate of interest you’re paying. What features you have, and how much your repayments are and how often these are made. Also check your loan terms and conditions, as well as any exit and ongoing fees.
2. Carry out home loan comparisons – Go online and type in ‘home’ loan comparison’ or visit a mortgage broker and ask them to compare home loans for you. Find out what interest rates are available for the same type of loan as your existing home loan. Make sure you include the same features, as the more home loan features, the higher the interest rate.
3. Set up a meeting with your existing lender – Take the information you’ve collected and discuss your existing home loan with your lender. Show your lender comparison rates and then negotiate a better rate. If your lender says they cannot match this rate, then consider refinancing. Just make sure you look at ALL Costs before you make a move.
Tired of your lender not passing on rate cuts? Contact eChoice today and we’ll conduct a home loan comparison for you and find a more affordable home loan for YOU
Written by eChoice