Keen to negotiate a lower interest rate?

After a series of rate rises throughout 2022 and 2023, the major banks are predicting that the Reserve Bank of Australia (RBA) is likely to leave the cash rate at its current level of 4.35% before possibly making cuts by the end of the year, or early in 2025.

These cuts are by no means certain though, and if you’ve found your home loan variable rate going up and up over the last few years, you may be wondering how you can save.

“To make it easy for you, we’ve put together a three-step plan on how to haggle for a better home loan rate,” says Effie Zahos, Canstar Ambassador and Money Expert InvestSMART.

Step 1: How low can you go?

Arm yourself with the information you need to bargain. Check your current interest rate and repayment, and find out what deals your lender is offering new customers.

“Lenders generally save their best deals for new customers,” said Ms Zahos.

If you are concerned about ending up on a much higher variable rate when your fixed rate expires, or if your variable rate has been climbing and you’ve had enough, you may be interested to know what else is out there.

To give you a head start, Canstar has done some of the legwork for you by looking at the loans on our database. According to the numbers crunched by Canstar research, the lowest variable home loan rate for a $500,000 loan is 5.75% (comparison rate 5.88%%) and the lowest fixed rate is 5.48% (comparison rate 6.24%) at the time of writing.

The lowest rate 70% LVR loans from the big 4 banks are between 6.44% and 6.79%, with comparison rates from 6.59% to 6.97%. The lowest rate 80% LVR loans from the big 4 banks are between 6.54% and 6.99%, with comparison rates from 6.64% to 7.07%. 

When you’re comparing home loan rates, don’t just be dazzled by the interest rate either. The crucial figure to check is the comparison rate. This is the true cost of the loan once fees have been included. It is based on a $150,000 home loan with a 25-year term.

Compare Home Loans

Is your current rate not looking so shiny now? Then turn your attention to step two.

Step 2: Are you a ‘high value’ customer?

If you want a better home loan rate, you need to speak your lender’s language and understand what makes a borrower sought-after. Can you tick more than three of these boxes? Yes? Then you’re in a great position to negotiate.

• Lives in the property.
• Paying principal and interest.
• On a variable rate.
• LVR is below 80%.
• ‘Very good’, ‘great’ or ‘excellent’ credit score.
• Employee in a role for more than six months.
• Serviceability ratio is around 30%.
• Property is not in a high density location.
• You have found a better offer.

“The amount of equity you have in your home can make a big difference to your rate,” said Ms Zahos.

“The average variable rate for a loan with a 95% LVR is 4.03%, whereas with a 60% LVR it’s 3.51%. So, if you’ve built some solid equity in your home, that’s a good reason to invite your lender to the negotiating table.”

There are some things that will hinder your bargaining power. For instance, what sort of security are you offering?

“If you’ve bought a small apartment in a high-density area, that can be a red flag for lenders,” said Ms Zahos.

How do you stack up on the serviceability front?

“It’s not just your income that lenders are interested in when they assess your borrowing capacity,” said Ms Zahos.

“They will also scrutinise your liabilities. Having debts on multiple credit cards and a few buy now pay later (BNPL) arrangements will reduce your appeal with lenders.

“Up and down employment through the pandemic period might have meant you negotiated a payment pause on your home loan or were late with a few repayments. This could impact your ability to do some hardball haggling and negotiations.”

If your lender won’t come to the party with a cheaper rate, you need to know whether it makes sense to refinance. If you have a fixed rate mortgage there will be break fees, and your new lender may request a valuation and charge an application or establishment fee.

“It’s worth doing a break-even analysis to work out how long it would take you to recoup any costs associated with refinancing,” said Ms Zahos.

“You should know your break-even point before you threaten to leave.

“If, for example, it costs you $1,000 to move but you would save $50 a month in repayments, your break-even point is 20 months.

“That means it would take you just under two years to recoup the cost of moving your home loan. You also need to ask yourself whether you can be certain that your new lender will remain competitive during that time.”

Still like your chances of bagging a better rate? Then prepare for step three.

Step 3: May the haggling commence

To get in the mood, focus on all the extra hours of work or spending sacrifices you’ll have to make to pay that extra interest year after year. Here is a script we’ve put together to point you in the right direction. Now go!

Script for contacting your bank: Home loan negotiation

“Hello bank employee. I’ve been checking how my mortgage rate compares with the rate you’re offering new customers, and I’m disappointed that my rate is so much higher.

[Don’t forget to have those crucial figures – interest rate, repayment, account details and the market-leading rates – at your fingertips.]

[Refer to the boxes you ticked in Step 2 and highlight all your credentials that make you the ideal borrower.] 

My home is not an investment loan. I pay principal and interest, have a great credit score and a lot of equity in the property.

[Speak your lender’s language.] For the bank, I’m a low-risk customer and I’m sure you’d want to hang on to me.

[Ask for what you want.] I’d like the rate you’re offering new customers, otherwise I’m happy to take my business elsewhere.

[The lender will likely offer a sweetener to stay. Perhaps a 0.15% discount. Don’t accept their first offer!]

I’m sure you can do better than that. I know you are offering new customers ‘X’ and as I said ‘Xyz’ has a better rate …I might have to take my home loan there.”

[Not getting anywhere? Ask to speak to someone higher up and be ready to ask for a mortgage discharge form.]

“If your lender won’t bend, be ready to walk but make sure you understand any costs associated with refinancing,” said Ms Zahos.

Remember to always be courteous and patient.

“If your negotiating is successful, get the reduced rate in writing via email immediately and check your statement to make sure it takes effect.”

Main image source: belozu/Shutterstock.com