In a competitive landscape, there are multiple ways to get the best value-for-money from your mortgage. Here’s some classified information that the banks would like to keep on the down low.
The Australian home loan market is both competitive and saturated, and as a borrower you have leverage when it comes to getting the most out of your home loan and minimising your repayments, fees and interest charges. With some comparative research and due diligence, you can become more savvy in the way that you manage your home loan in order to reap the benefits of useful features that are available on the market.
Here are 5 things that your lender doesn’t want you to know.
1. Rates are negotiable
One of the biggest things your bank doesn’t want you to know is that you have the right to ask for a rate discount, and that negotiating a better rate is straightforward. If you’ve noticed that your lender is offering a discounted rate to new customers, or that other lenders are providing a more competitive rate, you should simply contact your current lender and request a rate discount.
Most lenders have customer service teams that are focused on retaining your business, and you’d be surprised at how many lenders will be willing to budge in order to keep your account-- all you have to do is ask.
While the banks don’t want you to know how easy it is to negotiate for a better rate, they also don’t want you to know just how much you can save. Even a 0.5% rate reduction could lead to big savings.
To demonstrate, if you took out a $500,000 mortgage at 5.5% interest over 30 years, your monthly repayments would be $ 2,838.95. If you then contacted your existing lender and asked for a 0.5% rate discount, your monthly repayments would shrink to $ 2,684.11- a monthly saving of $154, or $1,848 per year.
2. It’s easy to refinance
Lenders are tight-lipped about the ease of refinancing to another lender (which is why the above holds true-- they would rather negotiate your rate than loose your account altogether). Although it’s essential that you carefully evaluate the switching costs involved when refinancing to a new lender, quite often refinancing can lead to significant cost savings in the form of a lower rate or more suitable features.
3. Bi-monthly is better
While you may be aware that making additional repayments and using an offset account can help you pay down your mortgage sooner, most lenders don’t want you to know that if you make bi-monthly repayments (as opposed to monthly) repayments, you could pocket a sizeable saving.
To illustrate, if we take a $350,000 mortgage with 5.5% interest, if you made bi-monthly repayments rather than monthly repayments, you would save $72,631 in interest and you would pay down your mortgage 5 years and 1 month earlier-- the numbers speak for themselves.
The difference in interest paid
The difference in loan length
4. Fees are not mandatory
Another untold secret of the home loan industry is that there are many home loans available without standard fees such as discharge fees, application fees or ongoing account-keeping fees. Evidently, your lender would prefer that you didn’t know this.
It’s worth shopping around for a home loan that offers minimal ongoing or discharge fees so that you can focus on meeting your repayments. In particular, if you’re thinking of locking in your rate for a fixed term, you should be wary of lenders that will charge hefty break fees.
If you’d like to minimise your account-keeping fees, compare home loans that waive ongoing fees.
5. Specialist lenders can help
If you have an undesirable credit history or you’re receiving government benefits, most of the big banks are hush-hush about the number of niche lenders and building societies that may have more lenient lending criteria. Why do the big banks want to keep this classified? Because they’d rather charge you a higher interest rate (to compensate for your poor credit history) than have you run to a competitor that may be more forgiving about your credit status.
A mortgage broker can be highly useful in terms of drawing upon a diverse range of lenders to find one that will suit your borrowing needs, especially if you are a non-conventional borrower.
Now that you know what the banks don't want you to know, compare current refinancing deals below
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Many Australian lenders keep their cards close to their chest when it comes to helping customers save money on their mortgage. Understanding the market and how home loans function, as well as a few tricks of the trade can help you ensure that you’re managing your mortgage in your favour (and not the lenders).