How to negotiate a better home loan deal

With interest rates at historic lows, many Australians are being urged to take the opportunity to negotiate for a better home loan rate.

But in the uncertain economy of 2020, many mortgage holders are finding that while they would like to refinance, banks’ strict lending requirements mean they’re stuck with their old interest rates.

A recent survey by finance comparison website Mozo found that 83 per cent of mortgage holders said they would like to change lenders, with up to $2,631 per year in savings available by switching from an average rate to the best offer on market.

However, 45 per cent of those surveyed said they were currently unable to switch loans because their incomes had been impacted by the COVID crisis.

Mozo’s survey revealed Australians remained concerned about a potential fall in property values and the reduction in equity that would bring with it would create more “mortgage prisoners”.

“For mortgage holders seriously concerned about making repayments, it’s only natural that they’d be nervously eyeing the housing market and hoping things don’t slide,” Mozo director Kirsty Lamont said.

“The double whammy of foreclosure and plummeting home value is a real concern for many.”

Sydney-based property investor, author and buyer’s agent Lloyd Edge, however, does not share the pessimism that house prices are likely to plunge. 

Mr Edge said the Sydney market was already starting to move quickly, particularly in in-demand suburbs, with positive sentiment buoyed by Australia’s good performance in containing the pandemic. 

He said the historically low interest rates on offer had helped to create strong demand, and urged people with a high interest rate to explore all their options when it comes to refinancing.

While Mr Edge acknowledged banks’ serviceability requirements made it difficult to get a loan or to refinance, particularly if a borrower was to apply with several lenders, there were still options out there for those looking to get a better rate.

“The first thing people need to do is speak to their own bank and see if they can get a reduction in interest rates,” Mr Edge said.

“A lot of people, they often think ‘let’s just refinance to a different lender’, but I think the first thing to do is actually speak to your own bank and see what they can do in terms of interest rates, and see if they can give you a better deal, or if there is anything else they can offer.

“If you have shown loyalty in terms of the fact that you’ve always made good repayments and you are up to date with that kind of stuff, you’ve got a leg to stand on where you can hopefully negotiate and get better rates.”

Mr Edge said a prudent move for those seeking to refinance was to seek the advice of a mortgage broker, who can do the legwork of analysing the myriad different home loans on offer in the marketplace.

“A mortgage broker has probably 30 to 40 different lenders on their panel, they can look into each person’s scenario, and then recommend who might be able to give the loan to them easier,” he said. 

“Different people have different scenarios. If they run a business or if they are sole traders and have been impacted by COVID, or maybe they lost their job and are on JobKeeper, and they have got their job back, there are options for those people. 

“It doesn’t mean they can’t get a loan or can’t refinance because of JobKeeper. 

“That’s another hurdle for refinancing - people’s income instability this year, but there are banks that will look after you, particularly non-bank lenders. 

“But a good mortgage broker is the person to talk to regarding that.”

Other top tips to securing a better rate, according to Mr Edge, is to seek the shortest term possible to minimise the amount of interest that will be paid, and to stay away from offers such as credit cards, frequent flyer points or other rewards.

“At the end of the day, you are probably paying for that even if you don’t realise it,’ Mr Edge said.

“The interest rate may be slightly higher, or there are some clauses in the contract which aren’t so good. 

“They are carrots to entice you to go to that particular lender, but you are probably paying for it one way or the other so I would be a little bit careful of that.

“The other thing I’d be careful of is honeymoon-type periods, where a bank will give a really low interest rate of 1 per cent for the first 12 months, but then after the honeymoon period you will end up paying a higher interest rate than what you would have if you had gone to another bank in the first place. 

“You really need to look at that bigger picture right from the start rather than being too attracted to these little things.”