Tips on how to get a better rate on your home loan

Negotiating for a better deal is something many people relish. Whether it’s at a flea market overseas, a bulk-buy at your local fruit shop, or just on the phone to the bank trying to get a better mortgage deal, some people enjoy the haggling process.

For the rest of us, negotiating doesn’t come naturally. We either find it too hard, too embarrassing, or think we’ll have no luck anyway, so we put haggling in the ‘too-hard’ basket.

But not bothering to negotiate on your home loan could mean you’re spending more money than you probably need to. And given that a home loan is likely your largest bill to pay, not haggling for the best deal could see you lose out on a hefty chunk of change over the lifetime of the loan.

It’s not all bad news, because negotiating for a better deal can be easier than you think! Competition is high between lenders and it’s their mission to lock you into that 30-year mortgage and stop you walking out the door! So here are some tips on how to get a deal that you’re happy with.

Remember, the information below is a general guide only and doesn’t take into account your individual needs or circumstances. Always do your own research and consult a professional for any big decisions on your finances.

Three steps to successful loan conversations

Perhaps you’re applying for a new mortgage. Or maybe you have an existing home loan but suspect you’re paying a lot more interest than you should be (you can always compare using a loan calculator to see what you might save at a lower interest rate). In either of these scenarios, it’s time to dive into those awkward loan conversations in order to nab yourself the best deal possible.

But you can forget about just ringing the lender and asking what they can do for you. A successful negotiation starts with a little legwork first. Here’s a useful guide to get started.

Step 1. Do your research

Start by scrutinising the market thoroughly to see what other lenders are offering.

You’ll also want to be sure you look at like-for-like products because there’s no point in comparing loans that don’t have the same features and benefits. You want similar products you can take to a lender for comparison. Ideally, it would be good to have about five competitively priced products from other lenders to put forward in making your case for a better deal.

Also, it’s worth finding out if there’s anything that might stop your bank from wanting to negotiate. For example, maybe they don’t negotiate on certain types of loans. Or, if you’re self-employed, you may hit a brick wall with certain lenders. That type of information is always good to have from the start, so you don’t waste their time (or yours).

Step 2. Play the bank at their own game

In the interests of research, it could be worth visiting your existing lender’s website and looking at their current loan offers. Once you have that information, and the rates that are being offered by their competitors, you’ll be in a much stronger position to negotiate when the time comes.

Step 3. Present your case

It’s crunch time: who are you going to call? If you have a contact at the bank, you could try that person first, or you could ask to speak to someone in the customer retention team, if you’re negotiating on an existing loan. Finding out the right person to talk to is smart, because some bank staff have more power to give you a better rate than others do.

When bargaining for a lower rate, it’s a good idea to let them know that:

  • you’re a loyal customer (especially if you’ve been with the bank for a long time) and feel you should be rewarded for such loyalty;
  • you’re aware that you can get a better deal elsewhere (show your research/examples of competing loan offers); and
  • you’d like to stick around with your lender, but are happy to refinance if you can’t come to a workable solution.

What if it all goes wrong?

Even the most seasoned negotiators can hit a wall during loan conversations. Some banks may be reluctant to negotiate if you’re self-employed, not a permanent resident, or owe over 80% of your property’s value (in the case of an existing home loan). If your lender’s final answer is ‘no’, you may wish to explore other options.

Negotiation might be easier than you think

Never be intimidated negotiating for a better deal when applying for a loan or paying off an existing one, especially if you’ve done a heap of market research, and you’re a loyal customer. Don’t get caught up in thinking lenders hold all the power because they don’t! Sometimes it’s easier than you think to talk your way into a great deal.

We hope these tips help you in getting a better deal on your mortgage. Speaking of better deals, it’s probably worth looking at your home and contents insurance too. If you’d like to compare your existing insurance against a new policy, we can help you compare quotes today.  

This article is an opinion only, provided for general information purposes only and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.

Posted: 27 Oct 2020

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