Did you know you can pick up the phone at any time and try to get a better deal from your lender?
If you said no, you may be among the large cohort of Australians who feel confused and disempowered by the lending landscape.
More than half of Australians are unaware that borrowers with variable interest rates can try to negotiate a lower interest rate with their lender, according to a recent survey by online broking platform Lendi.
Of the 2500 people surveyed, more than 60 per cent thought it had become harder to get a loan in the past year. That’s despite credit restrictions easing and ABS figures showing a surge in the number and value of owner-occupier loans in November last year.
The survey also found more than 80 per cent of home owners would switch banks for a better deal, but only a third had ever refinanced.
“There’s clearly a disconnect between intentions and actions,” said Lendi co-founding and managing director David Hyman.
More than half of those surveyed thought it was hard to find the best home loan deal available.
“It’s not apathy that is paralysing borrowers,” Hyman said. “It’s a lack of transparency in the market which blocks action by making it hard for borrowers to understand what their options are.”
Australians feel there is a power imbalance when dealing with lenders, with three quarters of people believing banks had more power in the home loan market than customers and brokers.
“The majority of Australians believe the distribution of power in the home loan market is unjust,” Hyman said.
While it may seem at times like banks are holding all the cards, lending to customers forms a huge part of the banks’ business model, with more than $2 trillion in home loans on their books.
A borrower taking out a $400,000 loan at the average variable rate of 3.82 per cent stands to pay $272,619 in interest over a 30-year loan term, assuming rates remain stable. Considering the huge amounts of money banks stand to make from borrowers, it’s in a lender’s interest to try to retain customers.
Interest rates are at historic lows and many economists are expecting another cut in February, and lending has become more competitive with smaller lenders growing their market share, meaning borrowers can get a better deal from their current lender if they know what to ask and how to ask it.
The 5-step guide to negotiating with your lender
If you think you’re paying too much interest on your home loan, it’s time to contact your lender and ask for a better deal. But there’s more to it than that.
“It’s a classic case of preparation is everything,” says Canstar group executive of financial services Steve Mickenbecker.
“You don’t just turn up at the lender and say ‘I want a better deal’ because the answer will almost always be ‘too bad’,” he said.
“Or, they might throw you a bit of a bone, which might be a little discount, and hope you go away happy.”
1. Research the market
The first step is researching what rates are available from other lenders. “Do the homework first,” Mickenbecker said. “Find out what you can get elsewhere.”
Mickenbecker recommends having a list of at least five lenders including a mix of the big four and smaller institutions.
Rates should be for comparable products. If you have an interest-only investor loan, there’s no point comparing it with principal-and-interest loans for owner-occupiers.
Lowest rate variable home loans for owner occupiers – principal and interest
|Reduce Home Loans||Low Rider Variable 80%||2.69%|
|Homestar Finance||Star Essentials 80% OO 150-850k||2.74%|
|Freedom Lend||Freedom Variable PI 80%||2.79%|
|Pacific Mortgage Group||Variable P&I||2.79%|
|TicToc Home Loans||Live-in Variable P&I||2.79%|
|Source: Canstar – 20/01/2020 – Based on variable rate home loans available to owner occupiers for the loan amount of $400,000 at 80% LVR with principal and interest repayments.|
Lowest rate variable home loans for investors – principal and interest
|Reduce Home Loans||Investor Rate Slasher 80%||2.99%|
|Pacific Mortgage Group||Investment Variable P&I||3.09%|
|Freedom Lend||Investment Freedom Variable PI Special 90%||3.09%|
|Homestar Finance||Investment P&I Variable 150-850k 80%||3.14%|
|TicToc Home Loans||Investment Variable P&I||3.15%|
|State Custodians||Low Rate Home Loan w Offset- InvP&I 80%||3.15%|
|Source: Canstar – 20/01/2020 – Based on variable rate home loans available to property investors for the loan amount of $400,000 at 80% LVR with principal and interest repayments.|
Lowest rate variable home loans for investors – interest only
|Freedom Lend||Investment Freedom Variable IO 80%||3.39%|
|Pacific Mortgage Group||Investment Variable IO||3.39%|
|loans.com.au||Smart Investment Home Loan IO||3.39%|
|Homestar Finance||Investment IO Variable 150-850k 80%||3.39%|
|Citi||Investment Basic Variable IO 80% 350k+||3.39%|
|Firstmac||INV Basic 80 IO||3.39%|
|Source: Canstar – 20/01/2020 – Based on variable rate home loans available to property investors for the loan amount of $400,000 at 80% LVR with interest-only repayments.|
2. Talk to the right people
Negotiating a lower rate requires a targeted approach, because some bank staff have greater power to reduce your rate than others.
“If you have a banker as a contact, it can be great to go to that banker first,” Mickenbecker said.
“If you try the branch first and get nowhere, the next step is to get on the phone and find the customer retention team. They normally have more latitude to negotiate.”
3. Make your case
Mickenbecker says borrowers should explain to the customer retention team the reasons why their rate should be reduced.
“You basically say to them, ‘Look, I’ve had my loan with you guys for five years and made all the repayments on time. This is my rate and it’s not in the market. I can do better than this. I expect my loyalty to be repaid.’
“It’s useful to have all those lines written down in front of you.”
Mickenbecker said it was important to remain polite, but assertive.
“You should be nice, but firm,” he said. “You’re being polite and friendly, but you’re certainly not presenting yourself as a pushover. You’re presenting yourself as someone who understands the market and won’t take no for an answer.”
Mickenbecker said this approach might yield results, but it was important for borrowers to be realistic.
“Ultimately you might not get what you’re after, so you have to know what your bottom line is.”
4. Call their bluff
If your lender refuses to lower your rate, or you feel the reduction is too small, it’s probably a good indication that it’s time to refinance.
“It’s easier to stay where you are, of course,” Mickenbecker said. “If you’re 0.2 per cent off the lowest in the market then maybe that’s OK but if it’s 0.4 per cent off, then that’s not OK.
“If you don’t get what you’re after, go to number one or number two on your list and apply for that loan as a refinance loan.”
While changing lenders may feel like a huge hassle, the savings add up over the life of the loan, and the sooner you refinance, the more you stand to save.
5. Use a broker
Alternatively, you may find it simpler and quicker to approach a broker to handle the refinancing process.
Brokers facilitate more than half of new mortgages, and are usually able to present borrowers with a range of lenders and products to suit their situation.
They can also model how expected savings compare with any break costs to work out the best approach.