As interest rates continue to drop, mortgage holders across Australia are reaping the rewards of cheaper home loans… But are you really getting the best deal? One well-placed phone call to your lender could save you thousands of dollars!
Ask your lender for “More, please!”
The Reserve Bank of Australia (RBA) meets on the first Tuesday of almost every month, where they decide whether to increase or decrease interest rates. Every time the RBA lowers interest rates by 0.25 per cent, banks only pass on 0.20 per cent at best — swiping your savings so they can line their profitable pockets.
So how do you shift the balance of power into your court?
Consumer property advocate Kevin Young from The Investors Club believes the big four banks (ANZ, CBA, NAB and Westpac) are “impacting the lives of ordinary Australians” by refusing to pass on full rate cuts.
But you don’t have to stand by with your hands tied, he argues. In fact if you have a mortgage, now is the perfect time to ask for a better deal, according to Young: “With the big four banks only passing on average 77 per cent of recent cash rate cuts from November 2011 to present, mortgage holders need, now more than ever, a strategy to achieve the rate reductions which are rightfully theirs.”
Why not try one of the following strategies?
Ask your lender for a discount
Whether it’s been 12 months or 12 years since you took out your home loan, now is the ideal time to ask your lender, “Am I getting the best possible rate?” “There are any number of websites offering comparison tables of interest rates from the big four banks and independent financial institutions, so use these to back-up your request for a better mortgage deal,” Young says.
Case study: This is an approach that Elizabeth, 31, says saved her over $1,000 per year. “I’ve been with my bank for five years and got one of their flyers advertising a low-rate home loan with my bank statement,” she says. “It was only valid for new customers, but I called and asked them to apply the rate to my loan. At first they were resistant but when I threatened to move to another lender, they quickly arranged to reduce my loan by 0.14 per cent. I’m saving $1,260 a year, or $105 per month.”
Get mortgage-free sooner! 4 Ways to save on your home loan >>
Negotiate other benefits
Your home loan isn’t just about an interest rate — there are loads of other features and fees you should consider, such as monthly account-keeping fees, annual package charges and the ability to offset your savings against your loan. “There are features you can negotiate in addition to lower interest rates, which may prove beneficial in the long-run,” Young advises.
Case study: Brisbane-based mum Melissa added an offset account to her mortgage, which allows her to leverage her $35,000 in savings to reduce the interest payable on her loan.
“I save close to $2,000 per year in interest, and I’m using that extra cash to pay off the mortgage more quickly,” she says.
Shop around for a better deal
The difference between the mortgage interest rates on offer between various lenders, including the big four banks and smaller, non-bank lenders can be up to 0.75 per cent — so don’t be afraid to look around for a better deal. “You need to take action yourself to get a better deal,” Young confirms. “Review the marketplace and use this knowledge as leverage to encourage your lender to pass on more interest rate savings, or take the option of switching institutions to save.”
Case study: “I’m having a baby and taking 12 months off work, so we’re refinancing our mortgage to take some cash out and manage financially while I’m not earning an income,” says Marisa from Leichhardt in Sydney. “After speaking to a mortgage broker we realised our home loan wasn’t competitive at all! We’ve moved to a fix-rate loan of 5.39 per cent for three years, when we were paying 5.79 per cent. It locks in some security, and saves us over $2,000 in interest. I’m wrapped!”