How to get the lowest home loan interest rate from your lender
Record-low interest rates have created some incredible mortgage deals, but not every borrower is able to access them.
Home loan interest rates have sunk below 1.8 per cent for fixed and variable mortgages, but securing these cheap deals requires more than simply phoning your lender.
Mortgage specialists say for both buying and refinancing, borrowers need to know their numbers, have a decent deposit or equity, make themselves attractive to lenders, and be prepared to switch banks.
Don’t expect the best deals to come from major banks, they say, and avoid focusing solely on the cheapest interest rate if other features are important to you too.
Research group Canstar’s latest list of the lowest interest rates on the market includes only one big four bank: Westpac for a four-year fixed rate principal and interest loan at 1.89 per cent. The other best deals come mainly from online lenders and smaller mutual banks.
Borrowers can find mortgage rates and other information on lenders’ websites, or check out a few comparison websites.
START WITH THE BASICS
Canstar spokeswoman Effie Zahos said comparison sites showed the top offers from a bunch of lenders, and these could serve as a borrower’s benchmark for negotiating a better deal. “First things first; set yourself up to win yourself a better rate,” she said.
“To do this you’ll need to know what interest rate you’re paying and your current loan balance.
“Often it’s easiest to start with your existing lender as it saves you from refinancing.”
Brighter Finance mortgage broker Marcus Roberts said it was important to know your own needs and your eligibility for a new loan.
“Speaking with a mortgage broker, visiting comparison sites such as Canstar or Finder, or through your own research across many lenders, will give you some initial ideas, rates, features and lenders,” he said.
“Once you’ve collated a list of potential options, do your research on what features you want and whether your property and income are eligible.
“Cost and low rates are absolutely important, but don’t overlook other features that might have more importance. These might be access to a branch network, multiple offset accounts, or waiver of lenders’ mortgage insurance for certain professions.”
Mr Roberts said many people sought help from mortgage specialists. “It takes fortitude and determination to sit down at the laptop for two or three hours researching lenders, features, acronyms, and eligibility for the right home loan,” he said.
“If your situation is very straightforward, absolutely you can do the research yourself, but often … it can become very daunting. Having an expert on your side can be vital in getting you the solution that’s right for you.”
LOOK BEYOND LOYALTY
New research by comparison website Mozo found borrowers were questioning their loyalty to the banks, and almost two-thirds were considering cheaper online lenders.
Mozo spokesman Tom Godfrey said online lenders often had competitive rates because of their lower overheads. “Don’t remain loyal to your current lender — bank loyalty doesn’t always result in a lower rate,” he said.
“By shopping around, you can score yourself a much better interest rate. Compared to the average big bank rate, a typical borrower could save as much as $90,000 over the life of the loan by opting for one of the cheapest home loan rates.”
Some people are put off by their lack of knowledge about smaller lenders, or no face-to-face discussions, but when it comes to borrowing money it shouldn’t matter who lends it to you. “Make sure you have your finances in order before going to the banks,” Mr Godfrey said.
“This means having three to six months of pay slips and any other financial information on hand.
“Once you’ve done your research, you should set up a bidding war between your prospective lenders, to make sure you get the best rate.”
CREDIT SCORE MISTAKE
Many people think a great credit score is the key to getting a great mortgage rate, but other factors are just as important. Canstar’s Ms Zahos said people’s deposit or equity, and their employment, were vital in lenders’ decisions.
“To qualify for the lowest interest rate offers, firstly you need to have a decent-size deposit of 20 per cent or more, or you need to have paid down your loan so that you don’t owe more than 80 per cent of the property’s value,” she said.
Employment status was a key part of loan assessments, Ms Zahos said.
“With so many people seeing their jobs and income impacted by the events of the past year, it’s important to maintain steady employment and wages in the months leading up to applying for a loan, and the same can be said for negotiating a better interest rate,” she said.
“Pay off any debts, reduce your credit card limits and if you’ve ever taken out an interest-free loan then close it, as this can all impact the lender’s assessment of your ability to repay a loan and the amount you are ultimately able to borrow.”
BARGAIN HARD
If requesting a better deal from your own lender, you’ll have to haggle. This makes many people uncomfortable, but they can have a family member or friend with them, or use a mortgage broker for support.
“One of the biggest negotiating tips I can give is to ask for the rate being offered to new customers, which is the rate designed to entice in new customers and usually isn’t passed on to existing customers,” Ms Zahos said.
“If you have a good credit history and have been paying off your loan with no missed or late repayments, then you will be in a good position to negotiate.
“If your lender isn’t quickly persuaded to lower your rate, then keep your options open.” Most lenders have customer retention teams that are authorised to lower the rates of borrowers who ask, but some will inevitably say no.
If that’s the case, borrowers must be prepared to walk if the costs of the new deal stack up. Their new lender should help them switch direct debits and other payments.
And with the cost difference between average and cheap loans totalling thousands of dollars a year, the effort should be worth it.
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