Getting a better interest rate is a ‘no brainer’ way to save thousands on a mortgage, but according to new research, half of Australians have never done it.
The Reserve Bank of Australia has kept the cash rate on hold at 1.5% in recent months but both fixed and variable rates continue to fluctuate, with economists recommending that now is the ideal time for borrowers to demand a better deal on their home loans.
Yet a survey of 1001 Australians last month by online home loan platform Lendi found just 41% of those with a home loan had ever successfully negotiated a better interest rate with their bank.
Over half of Australians are likely paying more on their home loans than they need to. That leaves more than half stuck with a ‘off the rack’ rate. By failing to bargain successfully with banks, Australian’s are throwing away thousands of dollars every year.
This is a wasted opportunity, especially in an environment where living standards are being squeezed by low wage growth and rising costs.
Lower interest rates means more dollars in the pocket. It can translate to tens of thousands over the life of a loan.
Customers need to always seek to pay as little interest as possible – why wouldn’t you want to get a better rate?
A rate that is 0.5% higher than it could be, would mean you’ll pay $52,000 more over the life of the loan, based on a $500,000 loan. That’s the difference between 4% and 4.5%.
So why are Australians failing to negotiate with their lenders? According to the research, many people simply didn’t know that competing offers were out there. And understandably, their current lender won’t tell them!
There is still time to act, though. Some interest rates for fixed rate loans are starting to move up, which can be a sign that the financial markets are expecting interest rates to be higher in coming years.
This is a sensible time to review your loans and potentially lock in some historically-low interest rates before they start rising.
The survey also found that Australians are anticipating a rate rise this year. However, there is a lot people can do to soften the blow, once they realise their bargaining power and sharpen their negotiation skills.
Before going to your bank to ask for a better rate, it’s important to do your research and have your information in order, however.
Generally, if you have a loan to valuation ratio (LVR) of less than 80% you’re in a good position to haggle.
The first step is understanding what interest rate and fees are being charged.
Then, look at your LVR and your remaining loan term. Use that information to see what is on offer from your current lender and their competitors. This gives you realistic insight into what you can ask for.
A mortgage broker can also help review several lenders and present alternative options. Though bear in mind switching costs, such as discharge fees and break fees, can add up to about $1500, so always be sure to seek this as a minimum benefit.