Seven magic words to cut your mortgage rate

Signing a mortgage discharge authority form would mean the bank has to release the security you have provided for your home loan.

Official interest rates are very likely to be cut again this week sparking another round of home loan refinancing.

If you have a mortgage - or a loan of any description - and you have not reviewed it over the past year, the chances are you are paying too much.

Put simply, your mortgage - whether it is a home loan or an investment loan - should not be over 3 per cent, it should be closer to 2 per cent.

Most people don’t know the mechanics of refinancing or how to approach their bank without the right terminology to get a quick response.

The good news is that it is all quite simple.

Tell your bank these seven magic words: “I am considering signing a discharge authority.”

If you ring the bank and ask them how does refinancing works, you are immediately on the back foot.

If you ring and say these seven words - which is exactly what you need to do in banking terminology - then alarm bells will ring and the bank will very likely respond.

Signing a mortgage discharge authority form would mean the bank has to release the security you have provided for your home loan.

For the bank it means they are set to lose you as a home loan customer. Either the bank will offer you a lower rate or you will know it is time to seriously think about switching to a better offer elsewhere.

I’m honour-bound to thank Stuart Wemyss of ProSolutions - a regular contributor to The Australian - for contributing the right choice of words to articulate clearly to the banks that you are serious about getting your rate down.

Moreover, in the interests of full disclosure: This approach is highly effective, I just did it with an investment mortgage at a major bank ... and it worked.

The Finder group has released a survey that says one in three consumers are considering refinancing in the next 12 months.

If that forecast comes to pass it means around one million home loans (986,000) will be refinanced. There are a total of 2.9 million mortgages outstanding.

If your bank makes a genuine effort to keep your business and comes to the party with a sufficiently lower rate than the one you are already on, there is virtually no paperwork or complications if you stay with the same bank.

However, many borrowers are taking the plunge and switching banks entirely to get a better deal. The value of external refinancings across the system was up 22 per cent year on year in the last figures.

The Finder group says the typical refinancer was on the average mortgage ($400,100) with an interest rate of 3.99 per cent – with principal and interest repayments totalling $1908 a month. The lowest rates are now just a tad above 2 per cent.

According to Finder, typical home loan borrowers could save $395 per month on average, or a combined $389m in the next refinancing wave.

Homeowners led the wave in refinancing this year with the trend peaking mid-winter.

However news of the opportunities in the banking system seems to have then spread to investors which have increased their level of refinancing in the latest figures from the Australian Bureau of Statistics.

From March to August this year homeowners refinanced $49bn worth of loans, investor refinancing came to $25bn.