How to negotiate a lower interest rate on your mortgage
Interest rates are at record lows, but this doesn't mean homeowners should get complacent about their mortgage.
A minor difference in rates can significantly reduce the amount of interest payable over the life of your loan. Even a rate reduction of just 0.5% can end up having a huge impact in the long run.
For instance, if a homeowner with a loan of $500,000 were to switch from a rate of 4.00% to 3.50%, they would pocket an extra $1,702 per year. Over the course of a 30-year loan, this would save them $51,067 in interest.
It pays to negotiate a better rate with your lender, but this can be a daunting prospect for some mortgage holders.
After all, it's comfortable to put the task in the too hard basket and forget about it, especially if your repayments are relatively low already. But the numbers can't be ignored.
If a quick phone call to your lender can potentially save you $50,000 on your mortgage, there's no excuse not to act. So where do you begin?
1. Do your homework
Jump online and visit a comparison site to get a good idea of what's on offer elsewhere. You want to be able to reference around three or four different rates when negotiating.
Make sure you take the comparison rate into account when weighing up your options. This factors in the interest rate of the loan plus any fees and charges attached. Mortgage repayment calculators can also help you to estimate what your repayments will be under a lower rate.
2. Pick up the phone
Call your lender and tell them you're dissatisfied with your current rate. Let them know you've been shopping around and list the competitive rates you've found elsewhere.
Remember that lenders want to keep your business. They'd much rather offer you a lower rate than have you move elsewhere. If they're willing to negotiate, they can usually amend your existing rate on the spot.
3. Don't be afraid to jump ship
If your lender isn't willing to budge or won't go as low as you'd like, be prepared to go elsewhere. Refinancing may sound scary, but the process has been simplified over the decades. You also have the option to go through a broker if you'd prefer not to handle it yourself.
To simplify the refinancing process, it can be a good idea to separate your home loan from your everyday banking. The more accounts you have with a single bank, the harder it can be to uproot your regular payments and move on.
Make sure you ask your current lender about any fees that apply to your loan closure. Early termination fees for fixed rate loans can sometimes range in the thousands. It's also a good idea to ask your new lender about valuation fees and if they influence your ability to refinance.
4. Do a yearly check-up
Whether you stay with your current lender or choose to refinance, this doesn't mean you should set and forget your rate. Perform an annual check on your home loan to ensure you're still getting the best deal.
Keep tabs on the cash rate movements from time to time and make sure your lender is passing on rate cuts in line with the RBA.
Loyalty doesn't always pay off as a mortgage holder, and there are plenty of disruptor brands out there that are offering competitive rates and loan products. A quick phone call and an annual loan check-up can shave thousands of dollars off your interest in the long run - it pays to be proactive.