Getting a better interest rate is a ‘no brainer’ way to save thousands on a mortgage, but according to new research, half of Australians have never done it.
The Reserve Bank of Australia kept the cash rate on hold yet again at 1.5% this month but both fixed and variable rates continue to fluctuate, with economists recommending that now is the ideal time for borrowers to demand a better deal on their home loans.
Yet a survey of 1001 Australians last month by online home loan platform Lendi found just 41% of those with a home loan had ever successfully negotiated a better interest rate with their bank.
Over half of Australians are likely paying more on their home loans than they need to. Picture: Getty
Lendi co-founder and managing director David Hyman said that leaves more than half stuck with an “off the rack” rate.
“It’s clear Australians are not confident in their negotiation skills, but by failing to bargain successfully with their banks, they are throwing away thousands of dollars every year,” he said.
“This is such a wasted opportunity, especially in an environment where living standards are being squeezed by low wage growth and rising costs,” Hyman added.
Finance specialist, John Tindall from Accumulus Home Loans in Sydney, agreed, saying a lower interest rate means more dollars in the pocket. It can translate to tens of thousands over the life of a loan, Tindall said.
“It’s a no brainer to try to get a better rate. You should always seek to pay as little interest as possible,” he said.
“If you’re on a rate that is 0.5% higher than it could be, then you’ll pay $52,000 more over the life of the loan, based on a $500,000 loan. That’s the difference between 4% and 4.5%,” he said.
So why are Australians failing to negotiate with their lenders? Tindall believed many people simply didn’t know that competing offers were out there. “And understandably, their current lender won’t tell them!”
He said there was still time to act, though. “We are starting to see interest rates for some fixed rate loans start to move up and this can be a sign that the financial markets are expecting interest rates to be higher in coming years,” Tindall said.
“This is a sensible time to review your loans and potentially lock in some historically-low interest rates before they start rising in earnest,” he added.
Hyman said the survey also demonstrated that Australians are anticipating a rate rise this year.
“There is a lot they can do to soften the blow. They just need to realise their bargaining power and sharpen their negotiation skills,” said Hyman.
“Before going to your bank to ask for a better rate, it’s important to do your research and have your information in order.
“Generally, if you have a loan to valuation ratio (LVR) of less than 80% you’ll be in a good position to haggle.”
If you have a loan to valuation ratio of less than 80%, you’ll be in a good position to haggle a better rate. Picture: realestate.com.au/buy
Hyman said the first step is understanding what interest rate and fees are being charged.
“Then, look at your LVR and your remaining loan term. Use that information to check out what is on offer from your current lender and their competitors. This will give you a realistic insight into what you can ask for,” he added.
Tindall said a mortgage broker can also help review several lenders and present alternative options.
“Bear in mind switching costs, such as discharge fees and break fees, can add up to about $1500, so seek this as a minimum benefit.”
