Co-author: William Jolly
Your home loan might have had the best interest rate going around at the time you got it, but rates change all the time, often without people being aware. Increased interest rates can leave you paying more than you once were, and nobody wants that.
Fortunately, there is something you can do to fix this. The Australian home loan market is highly competitive, so lenders are more likely than you might think to offer you discounted rates and favourable terms in order to keep you around.
But if you don’t ask, you don’t get. So here are just some of the steps you can take to get a better rate on your home loan:
- Do your research on the current rates
- Find out what rates new home owners are getting
- Don’t be afraid to ask!
- Be prepared to switch banks
How do banks change your interest rate?
Banks and financial institutions have decades of experience, and unfortunately, they can be quite good at being sneaky. Many of us have been conditioned to think that rate hikes are normal, but this isn’t the case.
Knowing how and why interest rates change can help you negotiate to get a lower rate. Here are some of the more common ways banks can change your interest rates without you realising:
How much can you save on reduced home loan interest rates?
Negotiating a better interest rate with your home loan provider is important, as even the smallest interest rate decrease can make a big change in how much you pay.
The following table gives you an idea of how much you could potentially save on your home loan by negotiating a half a percent reduction in your interest rate. The figures are based on a home loan over 25 years, comparing the difference between a 4.60% rate and a 4.10% interest rate.
|Size of loan||Difference in monthly repayment||Cumulative difference over 25 years|
|Source: Canstar. Based on a 25-year loan, difference in repayment between 4.60% p.a. and 4.10% p.a. interest rate.|
See for yourself and try out our Home Loan Repayments Calculator to get an idea of how much you could save.
1. Do your research: Current home loan interest rates
According to the latest data from Canstar’s home loans database, the average standard variable home loan rate on offer at the time of writing is just 4.49% p.a., while the lowest standard variable home loan rate available is 3.67% p.a.. So what interest rate are you paying?
Doing research on the local property market is the very first thing you should do before negotiating with your lender. Have a look around the various banks and lenders to see what interest rates they’re offering.
This will give you a good idea of whether you’re paying too much over the average in terms of interest, and can give you a good bit of bargaining power if you show that you know your stuff. Make sure you look for loan rates that are at or below the market average.
To help you with this, you can check out some of the current rates available in the table below. You can also visit our interest rates comparison page.
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.
Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning
2. Find out what new customers are paying
You might find that you’re paying more for your home loan than other, newer customers are being offered. Lenders tend to offer new loanees discounted rates and special features that existing customers don’t get, so you are within your rights to ask yourself, “Why aren’t I getting them, too?”
The best way to approach a lender about this is to prove your loyalty to them. If you’ve been with them for years and have always made your repayments on time (or ahead of time), then make the most of this. Ask them why a new customer should be given a much better deal than you when you’ve been with them through thick and thin?
Apart from the interest rate, if you’re otherwise happy with your existing home loan and lender, why not phone them up and ask them to lower the rate on your loan. Your knowledge of the average rates on the market will help you discuss the situation with more authority. Don’t be afraid to drop into the conversation what some rivals are offering while you’re at it.
3. Don’t be afraid to ask
Ask and you shall receive; do not ask and you shall not receive. Many customers want lower interest rates, more useful features, or smaller home loan fees, but they are hesitant to ask for it or don’t realise that they can ask their financial institution for it.
You have nothing to lose and much to gain by enquiring about a lower interest rate, so do it! Using the knowledge you have gained from step 1 above, call your lender stating that you have found a better offer from a competitor.
Be firm and direct, and state very clearly that you are thinking of switching (even if you aren’t). Be firm and direct, as despite what you might think, your business is important to them, particularly for something as substantial as a home loan.
Negotiating for an interest rate that’s just 0.50% lower than your existing rate can save you a significant amount of money over the duration of the loan. So don’t throw that away by not wanting to bother anyone.
4. Don’t be afraid to switch banks
Many banks think (perhaps with good reason) that most people are simply too lazy of indifferent to refinance their home loan. But the fact is that a small bit of effort now could save you thousands in the future.
After weighing up all the pros and cons of your home loan and its management, you may well decide to take your business elsewhere. You’ve already done your research on what’s around, and switching banks for a cheaper home loan that represents better value for you does not have to be a difficult process.
Banks would prefer to keep your business, as it is easier to maintain existing customers than it is to attract new ones. If you have a good history with that particular institution as well as a good credit score, then they are more likely to make you a good offer.
If you do have to follow through and switch banks after all, read our guide to how to switch home loans. Be sure to write down how much it would cost you to refinance. Ask your existing lender to explain the costs involved in paying out and closing your loan, and ask your new prospective lender to explain the all start-up fees involved in opening a new loan.
You can compare the different home loan providers we rate using our website:
What to do if your bank won’t cut your home loan rate
If you have spoken with your bank and they won’t lower the interest rate on your home loan, ask them why. They may not have any room to move on the loan or they may consider you a risky customer. Realistically, would you lend money to you?
If you have any doubts, get a copy of your credit report and find out what it says, because it is something all lenders will look at. To request a copy of your credit report, contact a national credit reporting agency such as:
Also take into consideration your track record of repaying the existing loan. Do you pay on time, early or very late on a regular basis? How do you manage other accounts or credit cards at the same bank? Over-the-limit or overdrawn? Constantly getting reminders from them about fixing up one thing or another? Do you seriously need to clean up your act before applying for another loan anywhere else?
Finally, remember – there’s more to any loan than just the interest rate. Check our other tips on how to save thousands on your home loan.