Whether you have an existing loan or you're thinking of refinancing, why not negotiate with your current lender?
The Australian home loan market is highly saturated which means that lenders are often willing to offer you discounted rates and favourable terms in order to remain competitive and to retain your business.
As a customer, this means you have increased negotiating power to reason with your lender to get better terms for your mortgage.
Here's some advice about how you can negotiate with your lender.
How to negotiate your way to a better mortgage
Do your research
Researching the local property market gives you an upper hand when it comes to negotiating with your lender. Get to know the property market by speaking to local mortgage brokers and viewing similar property listings in the area so you have an idea of what your property is worth.
Learn more about what drives property price growth, such as access to public transport hubs or proximity to public amenities. Consider the positive aspects of the property such as the structural integrity or kerb appeal so you can build a case about the selling points (and value) of your asset.
It's also a good idea to take a look around to see what interest rates your bank is currently offering to new customers, as well as the rates that are available from other lenders. Not only will this help you work out if you’re getting a good deal, but it will also strengthen your argument when it comes time to talk to your bank.
Look below to get an idea of the current rates right now, or view more in our home oan comparison guide.
Some of today's interest rates
Rates last updated January 25th, 2017.
- Bank of Queensland Fixed Rate Home Loan - 3 Year Fixed Rate Discount Rate $150k+ <80% LVR (Owner Occupier)
Comparative rate increases by 0.30% | Interest rate increases by 0.20%
January 6th, 2017
- NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
Interest rate increases by 0.23%
January 16th, 2017
- CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
Comparative rate increases by 0.03% | Interest rate increases by 0.15%
January 19th, 2017
Know the property’s value
Home loans are strongly affected by the property’s value. You can amp up your negotiating leverage by knowing this. Value isn’t just the monetary amount of the property, but it can also include other factors such as location, accessibility and security. If the property has an existing structure, you should also look into its age, previous renovations and repair, and if applicable, any certifications or permits from the local government.
Lenders will be straightforward informing you of their offers, knowing that you can easily say ‘yes’ or ‘no’. They will be hesitant in offering you an unreasonable loan if you've demonstrated that you've done some groundwork. This gives you better leverage to ask for the amount that you want and can afford. Keep in mind that many banks are often reasonable when it comes to negotiating as this can be more affordable to them compared to losing your account to a competitor.
Find out what you can afford to borrow
Your budget is the amount of money that you can afford to make towards each periodic repayment. Most people have a bottom line (the lowest amount possible) and a ceiling (the highest amount they are willing to dish out) when it comes to home loan amounts. Work closely with an accountant and a mortgage broker to help you estimate how much you can afford to borrow.
Use our calculator below to get an idea of your borrowing power.
Don't be afraid to ask
Whether you want a lower interest rate, minimal ongoing fees or different home loan features, many borrowers don't realise that they can simply negotiate for better terms by striking up a conversation with their current lender.
If you don’t ask for a better rate you won’t receive one, so don’t hesitate to ask for a better deal. You have nothing to lose and everything to gain.
Opting for an interest rate that's even just 0.5% lower than your current rate could lead to significant cost savings for the remainder of your loan term.
For instance, if you took out an average mortgage of $471,000 at an average standard variable rate of 5.35%, and negotiated for a lower rate of 4.85%, you could save approximately $144 each month or $1,700 each year.
This would amount to a staggering saving of $52,000 over the life of your loan.
Prove your worth
One of your best weapons when hunting for a better home loan deal is your reputation as a borrower. If you’ve got proof of a long history of making your loan repayments on time — and even making additional repayments if allowed — you’ll have more power at the negotiating table.
Provide loan statements dating as far back as possible as concrete proof that you are the type of customer any lender would love to have.
Demonstrate your loyalty
If you’ve been a loyal customer with your bank for several years, don’t be afraid to play on this connection. Why should a new customer be given a better deal than you, someone who has a long relationship with the institution?
Brooke negotiates a better deal
Brooke has spent the past five years paying off a $400,000 home loan on her apartment in Sydney’s north shore district. When she took out the loan in 2012, it had a variable interest rate of 6.99% p.a.
Currently, Brooke still owes $300,000 and has a remaining loan term of 15 years. An interest rate of 5.00% p.a. applies to her mortgage but Brooke is eager to see if her lender might be willing to lower the rate in order to keep her business. She knows there are loans with better interest rates available on the market to new borrowers, so she phones a lending representative at her bank to ask for a better deal.
Brooke states the reason for her call upfront: she wants a better interest rate on her home loan. At first she receives a non-committal response from the lender, so Brooke calmly provides her reasons for wanting a lower interest rate:
- The bank is offering a better deal to new customers. Having done her research, Brooke knows her current bank is offering the same loan with an interest rate of 4.50% p.a.
- Other lenders are offering similar loans with lower interest rates. Brooke has compared different home loans on the market to see that other banks are offering much more competitive rates on similar products.
- Strong repayment history. She has never missed a home loan repayment and has even made extra repayments towards her debt.
- Loyal customer. Brooke has been a customer with the bank for more than 10 years and has a number of other products (credit card, savings account) with the same institution. She doesn’t want to look elsewhere for a better financial solution, but she is willing to switch to another lender if her needs aren’t met.
In response to Brooke’s compelling argument, the lender promises to ‘see what I can do’ and quickly comes back to her with the offer of a 0.50% p.a. reduction in her interest rate. The result is a huge win for Brooke — the reduced interest rate means her monthly repayments will decrease from $2,372.38 to $2,294.98, a saving of more than $75 per month.
Brooke is able to put that extra money into her super account each month as she starts saving for her retirement.
Be ready to switch
Banks would prefer to keep your business rather than entice a new customer, so don’t leave your lender in any doubt about your willingness to switch if needed. It’s important that you are prepared to act if your lender won’t come to the party and offer you a better deal, so make sure you make this clear from the start.
Consider your bank’s perspective
Has your request for a better interest rate been shut down? If so, ask yourself whether there is any good reason why that might be the case. Is there any valid reason why the bank may class you as a high-risk borrower, for example a credit history that is less than perfect? If not, it might be time to look elsewhere.
Use available tools online
Comparison websites such as www.finder.com.au let you compare different kinds of home loan offerings in one go and often at no extra cost. Information is presented as a simple table with all the details that you would need.There are also home loan check tools available online. These sites compare your current loan with other offerings in the market. Some offer online calculators that can determine your payments if the rates increase. It will also help you identify which loans are easier for you in the long run.
To help you check for the best loan, finder.com.au offers a range of calculators for your mortgage, including a switching calculator and a mortgage health check.