Refinancing vs renegotiating home loan interest rates: What customers are best to do

Consumers attempting to renegotiate a better interest rate on their mortgage may miss out on thousands of dollars in savings.

Mortgage holders are being dudded by their lenders, with an exclusive analysis showing consumers may be better to refinance than renegotiate.

New data provided to News Corp by Lendi has revealed that customers who took their business elsewhere ended up on average with a better rate than those who remained loyal to their bank.

The mortgage broker’s analysis of more than 1100 customers found borrowers who refinanced with a new lender reduced their interest rate on average by 114 basis points, while those who renegotiated with their existing lender lowered their rate by 77 basis point.

The average interest rate secured by borrowers who stuck with their bank was 2.72 per cent compared to 2.51 per cent for consumers who settled with a new financial institution.

Based on a $415,000 loan over 25 years, a customer could save about $13,260 on interest if they were to refinance at the lower rate.

Mortgage holders may be better off refinancing rather than renegotiating with their existing lender if they want a better home loan rate. Picture: iStock

Lendi CEO David Hyman said the number of customers it had helped strike a better deal with their existing lender had increased over the course of last year, but typically borrowers would be better to look further afield.

“If you’re a good customer and after a lower variable rate, you may get a small discount up to about 30 basis points by negotiating directly with your lender,” Mr Hyman said.

“But our data shows, more often than not, you’ll secure a much more competitive rate by getting a broker to negotiate for you or by switching to a new lender.”

While mortgage holders are often encouraged to contact their bank and ask for a better deal amid record-low interest rates, they are not always successful.

Financial comparison website Canstar’s most recent Consumer Pulse Report, which surveyed more than 2000 Australians, found one in 10 people who attempted to negotiate a better interest rate were knocked back by their bank.

Lendi CEO David Hyman. Picture: Lendi via NCA NewsWire

Canstar group executive of financial services, Steven Mickenbecker, said there were a number of factors that could cause a bank to refuse a better rate.

Mr Mickenbecker said COVID-induced financial hardship was still hitting some Australians hard, and things like mortgage payment pauses and reliance on JobKeeper or JobSeeker welfare payments indicated customers had an uncertain future.

He said customers in these situations might be refused a reduced rate because their lender would presume a competitor would be unlikely to take on their business.

He said lenders were also less likely to offer discounts on “no frills” home loans, such as those without an annual fee, because profit margins on them were slim.

Anthony Justice, CEO at uno Home Loans, said the big four banks in particular could sometimes be reluctant to agree to a discount request despite offering lower rates on similar products to new customers.

“That’s definitely a characteristic in the market,” Mr Justice said.

He said typically customers would get a better rate if they put in the effort to refinance rather than renegotiate with their existing lender.

Originally published as Refinancing vs renegotiating home loan interest rates: What customers are best to do