What the bank doesn't want you to know right now
You may not know this about me, but I actually wrote the rule book for home loan discounting in my previous life working for one of Australia's largest financial services companies. What customers should get a discount, when, how much, and what customers are eligible for a higher discount than others.
Disclaimer alert: I'm not a financial adviser, this is not personal advice, this is general information about how banks look at home loan customers.
Want to save thousands?
One phone call to your bank, could legitimately end up saving you a truck load - if you have a loan of $1m, you negotiate your existing rate of 6% down to 5%, you'll have an extra $600 cold hard cash each month; or continue to make the same repayments as your original loan and you'll save nearly $1,300 per month (the logic of compound interest). You can do your own calcs on the Money Smart switching calc.
The rules
If your loan is new, or you had your rate reduced in the last 6 months, you may not be eligible for a rate reduction just yet. Most lenders have a time limit on how soon they will review your rate again, so be mindful of this. Also, once you do get a rate reduction, set yourself a reminder in 6 months + 1 day from now, to call them back, and ask for another review.
Every loan is classified as either 'Owner Occupied' or 'Investment' - this is a requirement of the Australian regulator, APRA, but if the home you live in, has been incorrectly classified as an 'Investment' loan, you could be paying a higher interest rate for no reason
If your loan is currently in arrears, e.g. You've missed payments in the last six months, the bank will put you onto the hardship team and it may be harder to get a rate reduction. Not impossible though, if you are still making some payment each month, talk to the bank about how much you can afford to pay each month and if a reduction in rate would help you meet that amount without going into arrears.
When to call
The week before the next Reserve Bank meeting** - as this is when the banks have their lowest new customer pricing available. It is also best to call during business hours, as often out of hours staff may not be able to escalate the review to a manager for approval.
** The Reserve Bank meet on the first Tuesday of every month
Before you call - 10mins of homework
Log onto your app and know what your current interest rate is. If you have your loan split across multiple accounts, check if the rate on each account is the same.
Go to your banks website and check what their current advertised interest rate is for a new home loan. At a very minimum, you should be able to access this rate, but more on that in a moment.
Jump onto Canstar, enter details that reflect your loan in terms of loan amount, state, repayment type, and choose your LVR (Loan to valuation - this is the value of what owe, as a % of what your home is worth). Filter the results by lowest interest rate first. Scroll past the top few "promoted" responses and take note of the lenders with the lowest rate and what that rate is.
It is best to do this homework on the same day you are calling the bank, as rates change all the time and you want to have accurate information when you call.
The call
When you call, ask to speak to a staff member about reviewing your home loan interest rate. Sadly, there is no point in going into a branch for this, as the staff in the branch are not empowered to review rates. If you are unsure what to say or how to handle this conversation, email me back and I'll share with you some scripting.
At a minimum you should aim for your bank to offer you the current rate they are offering new customers. If they won't, ask why and don't accept the answer. At best, you can get the bank to match the lowest rate you found on Canstar.
The golden nuggets you need to know
The first rate they offer you is very rarely the best they can do. Respond with "It is great you have been able to reduce the current rate, but to be transparent, I can refinance to multiple other lenders to get the interest rate of XX%, do you think you can find a way to make that happen?" If you have other products with the bank e.g. Superannuation, term deposits etc then this is a good time to mention that. People love 'transparency' and retention teams are all about 'making stuff happen' for their customers, so you have gently told them they haven't yet done their job.
If they talk about the "discount" they are giving you off a "standard variable rate" - the "discount" is not the number that matters, what matters is your end interest rate. Do not let them tell you that you have a great "discount" if your end interest rate is still higher than what new customers are getting.
If they do not offer you the rates you can see on Canstar, accept whatever rate they do offer you as any lower rate is better in the short term, and ask them what the process is to discharge your mortgage. If it's a form, ask them to email it to you. Ask if there are fees for discharge. This will put them on notice that you are seriously considering refinancing.
If they told you there is a bank fee for discharge, check if this fee is charged when you lodge the form, or when the discharge actually takes place, usually the latter.
If you have not got an interest rate that your are happy with; then regardless of whether or not you plan on going through with a discharge, LODGE THE FORM (assuming the fee is not paid just for lodging the form). Let the bank know that you are serious about leaving. Within 10 days, someone from the bank will contact you to ask why you are leaving and what they could do to keep you. At this point, you re-iterate that you would like an interest rate of XX% (the best rate from Canstar).
Thanks for sticking with me this far. Renegotiating your interest rate should be something you proactively do every 6 months! Like going to the dentist (but hopefully less painful!)
Apologies, if you are overwhelmed or confused. Please email or call me and I'm more than happy to talk you through it. I’d also love to hear how you go with your bank!
