- Posted By Toni Angeleski
It’s the 10-minute phone call that can save you thousands of dollars, yet two-thirds of home owners don’t make it.
A call to your bank to request a better interest rate on your home loan may feel uncomfortable at the time, but there’s a good chance you’ll be successful.
That’s according to a new study released by online mortgage broker uno Home Loans, which found those who request a better interest rate on their home loan have an impressive 84 per cent success rate.
“It demonstrates that if you don’t ask, you don’t get,” says uno chief executive Anthony Justice. “If you don’t actively manage your home loan, you’re probably not getting the best deal you could possibly get. Your bank is infinitely more likely to give you a discount if you put the heat on them and demand a better deal.”
How much could a better deal could save you? Over a 30-year, $500,000 loan, a saving of 75 basis points would equate to $78,120, assuming a rate cut from 4.5 per cent to 3.75 per cent and repayments remaining constant for the life of the loan.
Are you a safe bet?
RiskWise Property Research chief executive Doron Peleg says it’s important to remember that while there may be tougher lending standards in place, there are still many opportunities and promotions for owner-occupiers who are “good borrowers”.
Defined as home owners who have at least 20 per cent equity, steady employment and no issues with credit history, good borrowers are in the best position to negotiate in the current climate.
Peleg said many non-bank lenders desperate to increase their market share were not only slashing rates but offering all kinds of incentives to borrowers, such as cash-back deals as high as $3000.
Currently, non-bank lenders have an 8.3 per cent share of the market, while banks have a massive 91.7 per cent share.
“This means non-bank lenders are using incentives to attract customers to increase their market share, but it’s important to shop around,” says Peleg. “This is a great opportunity for home buyers who are prepared to do so.”
The fallout from the financial services royal commission has also given borrowers more leverage.
“Being able to build trust in customers is something all financial businesses should be focusing on,” says Justice. “And I think retention is really critical with the regulatory backdrop that the industry is experiencing.
“Putting customers first and giving them the best possible go has never been more important. Across the world, and across all industries, all the statistics will tell you that it’s way better to hang on to existing customers than to try and find new ones – they’re gold, you’ve really got to treat them well.”
Knowledge is power
So what are the proven strategies people use to secure a discount?
The uno study revealed using an offer from a rival bank was a great way to get the attention of your existing lender, with 12 per cent of mortgage holders successfully using this tactic.
“Go in knowing and understanding the market and what rates would be available to you under your circumstances,” says Justice.
Threatening to dump your bank was the most successful strategy in uno’s study, with 15 per cent of mortgage holders notching up a win by being prepared to jump ship.
Use a broker
The study also showed many borrowers delegated the conversation to a broker.
“If you’re uncomfortable asking for a discount, consider having your broker ask on your behalf, or go in prepared for the conversation by looking at what competitors are offering,” says Justice.
Home owner Cheryl Bowden was happy to make the call herself, but when two phone calls to her bank requesting a better rate failed to produce a result, Bowden went online to compare rates.
“It had been four years since I’d looked at it, so I knew there would probably be a better deal,” she says. An uno broker completed all the paperwork for refinancing and the new lender agreed to also take on Bowden’s car loan.
“It was a fair discount,” she says. “I’m making lower payments each month, the loan period is shorter and my car in included. I was quite surprised at the savings, it’s a great way to stretch every dollar.”
Bowden says her old bank finally returned her calls looking to retain her business but it was “too little, too late”.
Interestingly, the study also revealed that Australians who asked for bigger discounts were more successful than those who went too low.
Justice says this may reflect the bank’s belief that customers won’t switch for a small discount, and that a “good borrower” is worth retaining.
“When a lender looks at your circumstances, they will give you a rate based on those – your equity, your income, your expenditure, how risky you are as a customer and how able you are to repay that loan,” he says. “People underestimate where they sit on that risk spectrum so they’re surprised when the bank says your profile is such that we’re prepared to offer you this lower rate. The bank is probably thinking if we don’t offer it, someone else will.”