Whether it is your personal circumstances or the news about future rate hikes that is making you anxious, you can do a few things to ease your household budget and bring your mortgage debt under control.
How to get a lower interest rate on your mortgage?
With home loan interest rates rising across the country, it’s not unusual to worry about your home loan repayments and whether you can do something to negotiate a lower rate. While you might be surprised, negotiating a lower rate on your home loan is sometimes as simple as picking up the phone and asking your lender for a discount. However, it does help to do your homework, such as finding out the difference between the lowest rate on the market and what you are paying on your mortgage, to have a strong script ready when you ask your lender for a discount. It also helps to check your credit score and general financial position to determine whether you are in a strong position to negotiate.
Here are four steps to help you negotiate a lower interest rate on your home loan:
1. Compare home loan rates
Even though several banks have increased their mortgage rates, there are plenty of lenders in the market offering competitive deals to homeowners. You can hop over to any home loan comparison site online or speak to a mortgage broker to find out about the lowest interest rates on the market. However, it’s important not just to compare interest rates but also the fees and the additional features you need in your mortgage.
In addition to checking what other lenders have on offer, it’s usually good to find out what your lender is offering to new customers and how your interest rate stacks up against this figure. Once you have this information, you can call your lender to let them know you are paying extra on your mortgage and ask them for a discount.
2. Check whether you are in a position to negotiate
Before you ask your lender for a discount, it’s worth taking some time to assess your financial situation to find out about your negotiating power.
Most lenders have specific requirements for an ideal borrower they want to work with. These requirements help filter out borrowers with a strong financial position, who are least likely to default on their home loans. If you fit this category of an ideal borrower, your lender might not want to lose your business and is more likely to offer you a discount.
A good credit score, strong repayment history without any defaults, and steady, full-time employment are some of the conditions of an ideal borrower. If you meet these requirements and your loan to value ratio is less than 80%, you might be in an advantageous position while negotiating a discount. However, that doesn’t mean you cannot get an interest rate discount if you are not exactly an ideal borrower. Look around for options and compare rates from different lenders to find the most competitive home loan deal for you.
3. Call up your lender
Once you know the reasons that make you an ideal borrower and how much extra you are paying on your mortgage compared to new customers, you can call your lender to ask for an interest rate discount. Be polite and list the reasons you deserve a discount. If that doesn’t help, you could quote the lower interest rates available to you from other lenders.
If you find the negotiations are heading nowhere, it might be time to ask for a mortgage discharge form to show how serious you are about getting a rate discount. In this competitive environment, lenders often need your business more than you need them, especially if your financial situation is relatively strong. Therefore, they should be able to pass on a discount to you if they wish to retain your business. If not, you might want to consider refinancing to another lender if a lower rate is available.
If you decide to refinance, make sure you consider the costs of refinancing your home loan. These include any break fee you might pay if you are on a fixed rate home loan, fees payable to your lawyer or solicitor, the expense of setting up a new home loan, and other such costs. It could be a good idea to calculate the number of monthly repayments you’ll need to make to recoup your refinancing costs before you can start pocketing your projected savings.
4. Seek help from an expert
If you are looking for a lower interest rate on your home loan, a mortgage broker can help you find suitable deals from various lenders. Your broker can help you determine whether you are paying more as a loyal customer to your bank and even call them up on your behalf to negotiate a discount.
If you plan to switch lenders, a mortgage broker could help you find a better deal and crunch the numbers to estimate your savings to make an informed decision. A broker can also check if you are eligible for a professional discount, generally available to professionals like doctors, lawyers, chartered accountants and members of the defence forces.
As brokers work with multiple lenders, they are generally aware of the lowest rates and deals offered by various leaders and also their eligibility criteria. This makes it possible for brokers to suggest home loan deals best suited for you from lenders who are most likely to approve your application.
