How to get a better interest rate for your home loan
For many Australian mortgage borrowers (three out of four according to a Productivity Commissions report on banking), our ‘set and forget’ mentality is costing us our financial future thousands of dollars.
We, Australians are a trusting bunch, even after the Banking Royal Commission in 2019 and the 2020 ACCC report on mortgages confirmed, what we all knew, banks don’t have our best interest at heart, most of us still stayed loyal and continue to miss out on a better financial outcome for our future selves.
When we need to finance a property, regardless if it’s for a purchase or refinancing, we tend to go to our existing banks as we feel that we have a relationship with either the brand, branch and occasionally with particular staff members themselves.
Typical scenario re-run for someone taking a mortgage, they go to their bank or broker and get whatever they get offered at the time. On the loan settling, they start making repayments and only ever revisit their mortgage when looking to buy a new property or want to access the equity in-order to undertake home improvements, buy a car or in some cases, consolidate debt.
At the time of their loan settlement, most borrowers also became candidates for the role of Interest Rate Creep victim. You may be thinking, what is this Interest Rate Creep and how do I not fall victim! Let me explain.
Even though the RBA has left the underlying cash rate at an unprecedented low level since August 2016, banks and mortgage lenders have all been gradually changing their home loan rates independently of the RBA.
Reasoning given for these slight increases over time include, ‘bank funding pressure’, ‘increased regulatory cost’ and of course ‘need to maintain shareholder value’.
These minor increases over time are referred to as Interest Rate Creep. You may receive a letter from your lender, advising of an impending rate increase for whatever reason and as it’s a relatively small percentage, you simply read and forget.
Sadly, these small increases add up over time and according to the ACCC report can potentially cost your financial future in excess of $5000 every year of your mortgage.
What can you as a borrower do to take the power back?
The answer is simple, you need to actively review your home loan interest rates on regular basis, then you need to call your bank and ask them to offer a better rate, which there’s no guarantee they will offer.
All of this requires time and as our lives gets busier the banks rely on our ‘set and forget’ attitude to get away with the majority not reviewing their mortgages actively.
To enable borrower to take the power back, loansHub automated mortgage platform compares and manages your rate reviews for the life of your loan and all for free, so that you spend your time enjoying life! To learn more on empowering yourself, you can also read our free guide on Steps to Mortgage Success.
Facts to consider: Banks usually give their best mortgage deals to new customers, some also provide between $1,000 - $4,000 in cashback reward to new borrowers. No only is this sufficient to pay any mortgage/ title transfer fees, in most instances, clients have surplus funds left to place into their offset accounts.