Getting a good deal on your mortgage could help you in more ways than one. The lower your interest rate, the less the mortgage will cost to you.. Switching to a lower interest rate can also help you pay down your mortgage faster by continuing with the same repayment size as before. But is there any simple way of negotiating a lower rate on your home loan?
Well, it looks like there is. ‘Ask, and you shall receive’ is often true when negotiating a lower interest rate on your home loan. Yet, homeowners often feel intimidated about picking up the phone and asking for a better deal on their home loan that can save them thousands of dollars over the life of their loan.
Tips to get the best rate on your mortgage
Westpac’s recent predictions about interest rate hikes later this year have many homeowners worried. According to Westpac, rates can start rising as early as August this year, and if commercial banks were to follow the interest rate movements, someone with a $500,000 mortgage could be paying an additional $427 per month by March 2024.
As worrying as that may be, interest rates remain low at present, and it’s worth negotiating a lower rate on your mortgage if you find yourself paying more than the market average. Here are five tips to secure the best rate on your mortgage:
1. Try getting the same rate as new customers
Lenders typically reserve their lowest rates for new customers to get their business. If you’ve been with the same lender for a few years, the chances are you are paying a higher rate than these new customers.
To find out whether this is true, simply make a call to your lender to enquire about their rates as a new customer or hop on to a comparison site to check what they are offering to other customers. If you find you are paying more than new customers, pick up the phone and ask for the same rate that is offered to new customers. You’ll be surprised that most lenders are willing to negotiate to retain their customers, especially when you are someone with a good credit score and strong repayment history.
2. Do your research
Before asking your lender about lowering your interest rate, it could help to shop around and compare what interest rates other lenders are offering to borrowers in your situation. Any comparison site can give you an idea of ongoing home loan deals offered by various lenders. You can compare these deals with your existing home loan and prepare a list of the best offers you find online.
Once your list is ready, you have hard facts to support your conversation when negotiating a lower rate with your lender. For instance, if the lender refuses to give you the same rate as new customers, you can let them know about better deals available to you from other lenders.
When comparing home loans, look beyond the interest rate to get a better estimate of how much a loan will cost you. An important thing you should look at is the comparison rate, which is a more realistic figure that considers the interest rate and the fees on the loan. In the same vein, it’s important to compare the different types of fees you’ll pay on each loan and the various features available to you, and at what cost.
3. Don’t pay the loyalty tax
It’s good to be loyal, right? Nope, at least not for your financial health because you may end up paying what is known as the loyalty tax. For instance, if you are paying more than a new customer and your lender refuses to reduce your rate, you are paying them extra for being loyal to them. If that’s your situation, don’t be scared of walking away because other lenders out there are waiting to get your business and give you a better rate.
But before you walk away, let your lender know that you have been a good customer, but you are ready to switch because they are overcharging you. There’s a chance your lender will budge. If not, you already have the list of best deals from the previous step to consider.
4. Consider refinancing
Refinancing your loan with another lender could get you a better rate when negotiating with your existing lender won’t work. However, remember that switching loans can be expensive, and it’s worth finding out all the fees and charges involved in exiting your existing loan and setting up a new one to make sure it’s a healthy move for your finances. You can use an online refinancing calculator to see how much you may save by refinancing to a more competitive home loan.
5. Be the ideal borrower
If you want to secure the best rate on your mortgage, be the ideal borrower that lenders like to do business with. Lenders typically prefer borrowers with stable employment and excellent credit history. So, if your credit score is high, you work the same job for a few years, and you never default on your repayments, the likelihood of you getting a reduced rate is high. If your loan to value ratio has decreased to less than 80% since the time you took out the loan, it adds to your appeal as a borrower and can help you negotiate a better rate.
Bonus tip: Consider working with a mortgage broker
Even though it’s easy to find information about home loan interest rates offered by various lenders, shopping around for the best deal can be time-consuming. If you are time-poor or don’t want to go through the hassle of haggling with your lender, you could benefit from using the services of an experienced mortgage broker to find yourself a better deal.
Mortgage brokers work with many lenders and can use their experience and existing relationships to find the most competitive deals for you. They can also make it easier for you to refinance by helping you crunch the numbers and assisting you with your mortgage application.
