How to get your mortgage interest rate dropped

Last month, a reminder in my phone told me it was that time of year again: time to ask for a rate reduction on my mortgages (I have three). I got to work.

Yesterday I got a call from the bank, telling me I’d received 0.25% drop on all rates. On my home alone, that’s worth over $26,000 over the life of the loan. It took me an hour in total to get it done.

There aren’t many places you can make more than $25,000 in one hour with your clothes on and your dignity intact, but your mortgage is definitely one of them.

After sharing on social media last night, I’ve had a deluge of shares from people who’ve done the same, and a pile of questions about how to do it. This post is for the latter group, particularly those who want to stay with their current lender (I’ve excluded the option of changing to another lender, though of course that’s a feasible option if your bank won’t move).

I’ve included my personal scenario as a worked example throughout this post so you can see the process in action.

Step 1: Find your current rate

Do you know what rate you’re currently paying on your mortgages?

I’m surprised how often the answer is ‘no’.

That rate determines how much your monthly repayments are, and how much you’ll pay back on your property over the life of the loan. The lower, the better.

But you won’t know if you can do better until you find out what you’re currently paying.

You may find your rate is competitive and there isn’t much rom to go lower. In that case, you can say: “What a pleasant surprise!” and carry on with your life.

You may find you rate is not competitive. In that case, read on.

How do I know what’s competitive?

Google is your friend. Look up comparison sites. Head to the home pages of the major banks and see their advertised rates. Call or email a mortgage broker and ask that they can do.

Worked Example: My rate was not bad, but not great

I’ve got three loans, all with the same bank:

  • $44k balance on 4.12% (set as owner-occupier)
  • $149k balance on 4.70% (set as investment)
  • $607k balance on 4.12% (joint with husband, this one is our home)

Two months ago, the 2x owner-occupier loans started with a three, but thanks to an out-of-cycle rate increase (read: the Reserve Bank of Australia didn’t put the rates up, the bank did that of its own accord) they now started with a four.

A Google search revealed 3.59% offers, and I could see some Big 4 banks with 3.8 – 3.9% advertised.

I got in touch with a broker to see what he thought might be achievable to keep the homeloan with a Big 4 bank, with an offset account and no fees. His opinion was 3.84% was possible with the same lender, and we could do some restructuring to get the investment down to something comparable if I was keen.

Which I wasn’t – restructuring means paperwork. I detest paperwork. In this case, I’m taking the lazy tax hit.

3.84% became my target, with a matched drop on the investment loan.

Step 2: Choose your course of action

Having identified an opportunity to drop your rate, you’ve got two choices:

  • Do it yourself
  • Get someone (usually a mortgage broker) to do it for you

People often jump to the second option because the thought of asking for a discount is enough to make them squirm. I went with option 1 and it took less than 10 minutes, all of which were pleasant. So don’t immediately think you must get a broker on board.

If you’re on the fence, here’s some advantages of each option:

Advantages of using a broker

  • They’ve got volume on their side – having lots of clients with one institution gives them power to push for a better deal than you might achieve alone.
  • They do this for a living – if you find bargaining icky or it scares you, delegation is likely preferable. These guys will get it done cleanly and with minimum ick for you.
  • They know the market – this was much more useful pre-Google. It’s a marginal benefit now.
  • They’re a good testing ground – if you’ve got concerns, for example your income has changed and you don’t want to draw attention to it with the bank, a broker can help you work out what’s the best way to approach the bank. This tends to be a consideration if switching banks or restructuring, not important when it’s just a rate reduction you’re after.

If you’re suffering from analysis paralysis or just don’t-know-where-to-start paralysis, a broker is an option

Advantages of doing it yourself:

  • Trailing commissions – the bank will pay a trailing commission to the broker AND have to give you a rate discount. If they can just give you the same discount, they’re better off doing that in terms of profit. You can use this to your advantage.
  • Time saving – this might sound contradictory, after all mortgage brokers do everything for you, right? You still have to bring them up to speed, and they’ll still try to work through all the alternatives. The less scrupulous ones might ‘encourage’ you into something you don’t want to do, that causes headaches later on. I’ve done it both ways, and I’ve found DIY quicker.
  • Practice – negotiation is a critical skill. This is a safe environment to practice that skill. I think you’d be mad to pass it up ESPECIALLY if you find bargaining icky – you’ve got the most work to do.

If you go with a broker, you can stop reading here. Hand over to them for the next step.

Worked Example: I decided it was DIY time.

Step 3: Ask for a reduction

Start with your existing lender. You’ve already got the loan, you’re on their books, and they don’t want to lose you. Unless they’re lazy or stupid, they’ll try to keep you.

Also, changing lender means paperwork. Ugh. So see if you can avoid it first, before going down that path

There are scripts to ask for rate reductions all over the place – Ramit Sethi’s script is a good one, but you’ll have to pay for it (with your email address).

You can ask a variety of ways:

  • In person – visit your local branch, ask to see the loans person, and ask them for a reduction on the spot (if they’ll see you – you may have to make an appointment).
  • On the phone – call the bank and ask to speak to the loans department. Ask them.
  • Via email – this one is best if you have the personal address of a bank employee.

Then it’s as simple as saying/writing:

I’d like a reduction on my mortgage rate please.

At this point, it’s a good idea to have a target in mind. Sometimes you’ll be asked where that came from. ‘A broker’ is a good response and gets you out of the ‘we can’t match that rate because we have better services/more branches/better online systems/better options/to pay our directors more’ (kidding!) debate.

Worked Example: Asking nicely.

My local branch has kindly put the photo, name, email address and phone number of my local loans manager on the outside wall. I took a photo walking past last week.

I went the email route. Here’s the text of that email:

Hi Bob*,

I’m a customer of XXXXX with three mortgages.

I’d like to discuss a rate reduction following an approach from a mortgage broker. I want to see if you’ll match their rate before I sign with them.

Can we chat in the phone tomorrow (Tuesday) after 11am please? My number is XXXX XXX XXX.

Kind Regards,

We spoke on the phone, Bob* asked what my number was. I said 3.84%. He said he’d put in a request to head office because this was more than he could approve locally and get back to me the following day. He was polite, helpful and true to his word – he called back the next day saying he’d got 3.87% and 4.45% respectively, and would I accept that?

I agreed. We parted happy. Job done. Total time on phone for two calls: two minutes.

Same loan. Same bank. Still have an offset. Still have no fees. No paperwork. #winning!

*Name changed for privacy reasons – I haven’t asked for Bob’s approval to share this story, but I think he’ll be OK with it 🙂

This is how I felt when I got off the phone the second time

What if they won’t reduce?

Sometimes you get a call back that’s not favourable, or the person you’re talking to fobs you off (it’s happened to me in the past). Two common reasons/excuses for not reducing:

  • You’re on a fixed loan – because you fixed it earlier, or it’s new/in the honeymoon period. If there’s a financial penalty for lowering the rate, it’s rarely worth pursuing, but run the numbers just in case.
  • They can’t compete – so they’re not going to lower it because betting you can’t be bothered switching. They don’t say that to you, by the way. So now the ball’s in your court: are you annoyed enough to switch? Or are you just gonna stick with the status quo and try again next year?

What’s it worth, anyway?

The answer depends on your mortgage terms.

To help you work it out, I’ve created a simple calculator in Excel. You can download it (no email required), enter your loan info in the yellow cells and you’ll see what it’s worth to you over the life of your loan.

Worked Example: $31,050

For my loans as above:

  • $44k: $697
  • $149k: $3,984
  • $607k: $26,369

Basically a lot. Not bad for a bit of effort.

Now, it’s important to note I won’t actually save that much. I have a whopping offset account against the biggest home loan, so I don’t get charged anywhere near that amount of interest. I do this instead of paying down the balance so I have ready cash to invest with whenever I want (for example, if there’s a swift drop in the stock market or I spot a bargain property). But every little bit counts!

Since I posted about this last night, I’ve had calls, comments and private messages from people who’ve done this, either off their own back earlier this year or did it today in response to my prompt. They all came back with drops of at least 0.25% – the record so far is 0.81%.

So, what are you waiting for? No need to be paying an ignorance/lazy/scared tax. Get onto it 🙂

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Free and cheap financial education resources

Want to learn how to manage your money wisely? Good news! There are truckloads of solid financial education materials available – for free – to help you get up to speed.

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Having bought property in 2001 at 19 years old, I get asked this question at least once a month:

 Could a 19 year old do the same today, in 2016?

My short answer is: yes, they could. I’ll outline how in this post.

The far more important question is: if they could, should they? Well, that’s a slightly longer answer. Read more

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By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

Money and movies: two of my favourite things. I was reminded of this when I found myself glued to SBS when ‘Margin Call’ was on, even though I had to hold my eyelids open.

Films about money and the people who covet it are fascinating to me. It’s an addiction, even more so than reading (and I read around 100 books a year). I’m hanging out to watch ‘The Big Short’.

So here it is, my list of money movies worth watching. If the heat is getting to you, put on the air con and pop one of these on your chosen device. You can claim it’s educational 🙂 Read more

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By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

‘Thanks for seeing me without an appointment.
I’ve received offers of 3.99% variable on my loans from three other banks.
I’d like you to match that.’

‘The other gas company has offered me a 20% discount for the next year if I switch to them.
What can you offer me to keep me as your customer?’

‘I see these vacuum cleaner bags are $27.95 per box.
Can you do a better price for me please?’

These are real sentences uttered in the last month. I spoke the first and third, a colleague of my husband spoke the second. In all three cases, it resulted in a discount – not always the requested amount, but a discount nonetheless.

When I tell people that I asked for these discounts, I get a variety of responses:

  • Noses wrinkled in distaste at the thought of asking for a discount (how low-class).
  • Smug looks of the ‘I already get a great deal so I don’t need a discount’ variety.
  • Blank looks of the ‘I didn’t know you could do that’ variety.
  • Blank looks of the ‘why would you bother’ variety.

I’ve met only a few fellow discount-seeking kindred spirits in my time. I ponder why that is.

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Ah, those little pieces of plastic. I dimly remember a time in my childhood when there was a paper system for credit cards that involved taking an imprint with what looked and sounded like a machine designed to take off the fingers of unsuspecting shop assistants. Now you just wave them nonchalantly and walk out the door. In fact, you don’t even have to bother taking them out of your wallet – you can just use the virtual wallet on your phone if you so choose.

So easy. So tempting. So dangerous.

Now don’t get me wrong. The credit card is not, in itself, dangerous. It won’t leap out of your wallet and bite you. It cannot bankrupt you without your instruction.

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By Lacey Filipich BEng(Hons) MAICD

On Tuesday, the Reserve Bank dropped the official interest rate to 2% – an all-time low. On Wednesday, Joe Hockey sent out the message: now is a good time to borrow.

But is it really?

There’s no doubt it would be great for the Australian economy in the short-term if we all went out today and got a loan. Joe would certainly sleep better. More money means more spending, which stimulates employment and a bunch of other wonderful things we’ve taken for granted in this 20+ year period of growth.

It’s just not sustainable.

Australia has the highest rate of household debt vs. Gross Domestic Product (GDP) in the world. Since the Global Financial Crisis (GFC), we’ve continued to borrow instead of paying down debt – individuals and governments alike. We are still living beyond our means. Eventually, this debt has to come down, or at least stop growing at such a rate. We’re just delaying the inevitable by increasing our debt, and setting ourselves up for a bigger fall.

It is irresponsible for Joe Hockey to make a blanket statement like ‘go out and borrow’. Shame on you, Treasurer. Unfortunately this isn’t all that surprising from the man who recently proposed we should use superannuation to buy our homes.

Perhaps Joe could have said it better if he expanded the statement:

‘Now is a great time to borrow
if you can afford it and you’re borrowing for assets.

An asset is something that puts money in your pocket. It is NEVER a good time to borrow for liabilities – those things that take money out of your pocket. Things like cars, computers and holidays are not what smart people spend their credit on… unless they’re beating their interest charges with solid, consistent investment returns.

Most importantly: now, more than ever, it is important to take your personal financial position into account before taking on more debt. Australia’s economy is in transition. The mining investment boom is over. Taking on debt in this environment is only a good idea if you can afford it, just in case you’re the unlucky recipient of a redundancy or simple firing. Think carefully before leaping.

That’s two strikes, Joe. If you were my personal financial advisor, I’d be firing you.

We teach adults how to get on top of their finances so they can stop work sooner and stop losing sleep over money. Part of that is, of course, teaching them how to get into the situations you’ve just read about in the first place. If that sounds good to you, check out our course on Achieving Financial Independence.

You may also like to check out our Facebook page, where we share articles and video tips. Given you’re reading about bankruptcy, you may be interested in reading our tips on credit cards, avoiding the Struggle Street trap, and some wonderful free and cheap financial education resources you can access, including people to talk to for advice.

For those in debt and not quite at the stage of bankruptcy, we also have a free course called ‘Get out of debt fast’. You’ll find it on our homepage.

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Though it would still make me unhappy, as it’s an irresponsible way to poll opinions, I hope it’s the latter. If it’s the former and Hockey’s understanding of super and what constitutes an asset is that dismal, quite frankly we’re up the creek with no paddle. Read more

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Now, imagine a magic fairy came along and offered to wipe out all your debt. You could access your bank accounts again and keep all your salary (after tax). Sounds pretty damn good, doesn’t it.

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