Let’s sock it to them for better rates deal

“MORTGAGE war erupts” was how one newspaper headline summed up CommBank’s move this week to chop its fixed rates to its lowest levels in history.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

“MORTGAGE war erupts” was how one newspaper headline summed up CommBank’s move this week to chop its fixed rates to its lowest levels in history — which both the NAB and Westpac immediately matched. A day later, ANZ made its move, too.

OK, so calling it a war is, to quote my dear grandmother, over-egging the pudding just a little. After all, you’ve got four companies making a combined $27 billion a year in profits. That’s not a war, it’s a pillow fight.

Make no mistake — now is an awesome time to pick up a fluffy pillow and beat your banker mercilessly with it.

Let me explain what’s really going on.

CommBank has rightfully copped a flogging for their past dodgy financial planning practices and needed a good news story: so they shaved 0.7 per cent off their five-year fixed-term loan.

But the truth is not many people take out a five-year fixed loan, so it won’t cost them much (and that’s exactly the point). In fact, the vast majority of people stay variable and those who fix, do it for three years, not five.

After all, five years is a long time (Kevin-019 could be back in power then). And locking in your rate also locks in your options: it restricts how much you can repay and redraw and if you need to break the deal you’ll be hit with penalty fees.

So even though rates are low, there’s no need to play defence — in fact you should be on the attack. Right now is a once-in-a-generation opportunity to get your banker off your back and the best way to do that is by screwing them down to an ultra-low variable rate home loan.

The best deal at the moment is NAB’s Jetstar-inspired bank brand UBank at 4.62 per cent (though if you actually want to take up the offer you’ll need to have a 20 per cent deposit, or the equivalent in equity in your home).

But let’s face it, only hardcore money geeks are going to be bothered with the hassle of switching banks. For the rest of us, just call your bank (perhaps the next time you’re taking a long drive) and demand a better deal.

Tell them you’ve been offered 4.62 per cent by a competing bank and demand they match it. Summon the three-year-old in you — don’t take no for an answer. Chances are they won’t match that rate, yet they will give you something.

Not a week goes by that someone doesn’t email, tweet, Facebook or send me a handwritten letter (yes they still do, usually in lovely cursive script), telling me how easy it was to save thousands of dollars and knock years off their mortgage.

So pick up your pillow — and let the war begin.

Tread Your Own Path!

Originally published as Let’s sock it to them for better rates deal