Six Golden Rules For Getting A Great Interest Rate Deal
15th Jun 2019
Interest rates are heading south, which helps borrowers’ wealth to head north.
This month’s interest rate cut by the Reserve Bank of Australia is tipped to be the start of a new rate-cutting cycle that could drop the official cash rate from 1.5 per cent — which is where it started June — to 0.5 per cent within a year.
While this means more frustration for retirees and savers who rely on interest income from bank deposits, it’s a brilliant bonus for borrowers.
Comparison website RateCity.com.au says the RBA rate cut lowers the average standard variable home loan rate of the big four banks to 5.15 per cent.
However, nobody in their right mind should be paying anything near the standard variable rate on their mortgage. The big banks themselves offer a discounted variable rate averaging 4.39 per cent, RateCity says, and the lowest variable rate on the market is 3.19 per cent.
The biggest savings for home loan customers do not come from RBA rate cuts.
They come from shopping around, finding the lowest rate you can, and bargaining with lenders — including your own — to cut interest costs.
RateCity says an average borrower switching from a big bank discounted variable rate to the lowest available rate would save up to $228 a month. That’s more than $2700 a year and $68,000 over the life of the loan.
A borrower switching from the standard variable rate to the lowest available rate would save a delicious $359 a month, $4300 a year and up to $107,000 over the length of the loan.
One hundred grand. That’s not chicken feed — that’s like striking gold.
And to strike gold it’s wise to follow some rules. Some golden rules. So here they are.
1. Don’t bargain blindly. If you demand a better rate without knowing what the competition is offering, your bank is likely to laugh in your face — or at least behind your back. Knowledge is power.
2. Check several comparison websites. Different sites focus on different lenders. Apart from RateCity, some of the other big ones are finder.com.au, canstar.com.au, iselect.com.au, comparethemarket.com.au and infochoice.com.au.
3. Be treated as a new customer. Banks offer the best deals to new customers as they’re trying to win business from competitor. Ask your lender to give you the same rate. After all, you’ve already been giving them money for years.
4. Be prepared to walk if your lender won’t come to the party. Switching mortgage providers is easier than is used to be, yet a vast majority of borrowers still stick with the big four banks.
5. Try and try again. If you’ve been knocked back for refinancing or switching lenders in recent years because of tough lending rules, don’t give up. Regulators are easing up on mortgage serviceability calculations, so there’s light at the end of the tunnel.
6. Get help. Home loans can be confusing, but rather than put it all in the too hard basket, seek professional assistance from a mortgage broker. The bank pays them, rather than you, so there’s usually no extra cost but plenty of upside.