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,
Lacey

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 🙂

Should I pay down my mortgage or use an offset account?

Once every six months or so, my husband brings up paying off a chunk of our mortgage in a lump sum and I argue in favour of the offset account. The discussion that ensues is a well-rehearsed dance:

Me: “But if we pay off a lump sum, if we need that cash we’ll have to redraw, and maybe the bank won’t let us.”

Hubby: “But if we pay it down, we can drop our mortgage repayments.”

Me: “What’s the point in that? You’ll be charged the same amount of interest either way.”

Hubby: “How can that be? Surely I’ll be charged less interest if I pay it off?”

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Housing affordability: you can’t spend your way out of this

There’s a problem with the way Gen X and Y view housing affordability, and it’s going to ruin the financial futures of their children if they don’t snap out of it pronto.

I read this article in which the author says she is spending money on brunch because she can’t afford a house, like it’s the only way she can console herself about her dire financial future. Read more

Ask and ye shall receive

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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Five steps to getting the most from your tax return

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

Next year I’ll be clocking up my 20th as a submitter of tax returns. That’s twice as long as my relationship with the father of my children – a looooong time in my book.

Over nearly two decades, I’ve seen the methods of submission change: when I first started, you had to lodge via a form that you posted to the Australian Tax Office (ATO). FY15 will be my seventh online submission via eTax, which has evolved and improved significantly since my first experience with it in FY08. I’ve also seen the rules change over time: health care levies have been introduced, medical claim limits have dwindled away and superannuation limits and levies have changed considerably to name but a few.

You can take this lesson from my experiences: tax is not static.

Every year there are new advances in how we submit, and changes (sometimes subtle, sometimes not-so-subtle) in what we can and should claim. It doesn’t do to be complacent about your tax return because you could be missing key opportunities to maximize how much you get back… or minimize how much you pay, whichever way you prefer to look at it. It’s also not mandatory to get an accountant to do it for you. Most people can handle their own tax returns if they want to, especially with the increased efficiency of the online system these days.

Through all this, one thing remains certain: you’ll be submitting a tax return. Why not make the most of the experience? Read more

Super and your home do not mix

By Lacey Filipich BEng(Hons) MAICD

When I saw Joe Hockey on the news in March suggesting that superannuation (super) may one day be available to help First Home Buyers get into the property market, my jaw dropped. Could it be possible that our country’s most senior financial decision maker has such a limited understanding of the purpose of super? Or was this simply an off-the-cuff comment aimed at taking the population’s temperature on this issue?

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

Tips for first time property buyers

By Lacey Filipich BEng(Hons) MAICD

Having bought a property in my teens, I am asked time and again by students and those early in their career how they can do it too. To those aspiring young property magnates, I say: bravo! Thinking about wealth creation in your teens and twenties is fabulous. It’s bound to put you in better stead than those that only wake up to it later in life. That you’re asking the question makes you one in a hundred.

Congratulations done. Now the hard part… Read more

Building a future one property at a time

When I opened the interview with Erica by explaining I wanted to blog about her experiences building homes, I said she’d built a lot. Her response was, ‘Oh, I don’t know about that.’

She’s built 18 houses in her life.

Call me crazy, but that’s my definition of ‘a lot’ for someone who’s not a professional builder.

After so many houses, building might seem old hat. However, you can hear Erica’s enthusiasm for real estate in her voice. She referred to it as a hobby. Even though she’s built her last house – the one she and her husband Tony will retire to eventually – Erica still advocates building as an excellent way to make profit in real estate.

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Selling investment property | %%sitename%%

Should you sell your investment property?

Author’s note: This article on selling investment property is by far our most popular – probably because it’s comprehensive and comes complete with formulae – but at over 5,000 words it’s longer than an average book chapter. So, here’s the summary of what you’ll find in this article so you can decide if it’s what you’re after:

  • Five sensible reasons to sell (to reduce interest on your home; poor performance; better asset available; it was once your home; losing sleep over it).
  • Five reasons that it may be better to hold (it’s a recent purchase; solid performance; high potential for growth; it’s key in your strategy; no mortgage on your home).
  • Full worked calculations based on the scenario of having a home mortgage and an investment property (three worked options: keep both; sell investment and swing profits to home mortgage; sell investment and use profits to buy another property).

At the end of the article, you’ll find instructions for obtaining an Excel spreadsheet that does all the calculations covered in the article and lets you run scenarios for your personal situation.

 

Recently, I was asked on two occasions in a single day for my thoughts on whether or not my friends should sell their respective investment properties. When I mentioned being asked the same question twice that day at dinner in the evening, a third friend said ‘Yeah, I’ve been wanting to ask you the same question about my property.’ I’ve been pondering why so many people were thinking about selling their investment properties around then.

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Working out your financial goals

By Lacey Filipich, BEng(Hons), MAICD

Setting financial goals can be exciting for some, nauseating for others and downright offensive for a few amongst us. As with most things in life, setting goals is an important first step in getting what you want. The goal is only the first step – you then have to go out and make that goal a reality through work – but without the goal you’re at risk of waking up one day and finding you’re not happy with your circumstances. Regardless of how you feel about money it’s worth having a goal in mind… even if that goal is to never think about money.

How you manage your money is heavily values-based. If you prefer to avoid risk and you value your independence, you’ll have a completely different approach from a person who’s happy to take a lot of risk with someone else’s money if the potential rewards are great enough. There are no hard and fast rules… actually I lie. There’s one rule: don’t spend more than you earn. Everything else is negotiable. So, where to start?

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Selling property: a cautionary tale

By Lacey Filipich, BEng(Hons), MAICD

This month my husband and I sold a property. We don’t do that often. In fact, it’s only the second time I’ve sold and the first for hubby. The last time was a golden handshake from my employer: they paid me the average of two valuations on the home and I signed it over to them. I didn’t have to engage an agent, I didn’t have to clean my house for home opens, I didn’t even have to think about it really. That’s a far cry from this recent sale, which can reasonably be termed ‘a learning experience’. With all this learning fresh in my mind I am writing this post so that you, dear reader, may profit from it if you ever decide to sell a property. Read more

Buying a property in my teens

By Lacey Filipich, BEng(Hons), MAICD

When I started saving half the income from my part-time jobs, I envisaged I would one day use the money to buy a flashy car. I dreamed of driving that car in the finest clothes, on my way to a swish restaurant. I had absolutely no expectation that my savings would be used to buy a property before I’d even finished my second year of university, but they did. I traded the flashy car, clothes and restaurant for a small, dingy apartment in which I wore clothes encrusted with paint and ate microwave dinners. I was 19 years old at the time. As usual, I have my mother to thank. My gratitude knows no bounds… seriously.

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Six ways Monopoly is NOT like real life

By Lacey Filipich, BEng(Hons), MAICD

In last week’s post, I expounded on my theories about how Monopoly (the board game) is like real life property investing. In the interest of balance, I’m following up with this post about the ways in which Monopoly is NOT like real life property investing.

It’s hardly surprising that a board game does not fully capture the intricacies and nuances of something as complex as property investment. I know you’re not silly enough to think you’ll get $200 every time you go around the block, and your kids probably aren’t that silly either… at least I hope not. However, it’s best not to fall into the trap of thinking Monopoly can teach you everything you need to know about property investing. Here are six ways in which Monopoly misses the mark…

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7 Ways Monopoly is like Real Life

By Lacey Filipich, BEng(Hons), MAICD

Monopoly and real life?

Monopoly? Really? Yes, I’m not talking about what Microsoft had in the 90’s, I’m talking about the board game we all know and love. Monopoly began life around 1903, originally (and quite aptly) named ‘The Landlord’s Game’. The version of Monopoly we are familiar with today was officially released in the early 1930’s and has been a staple in most Australian childhoods since then. In primary school, my sister and I spent many a holiday racing each other around the board to buy Mayfair and Park Lane. We had games that went on for several days and some that lasted mere minutes. Of course, a board game can never be a perfect replication of such a complex investment vehicle as property, but it was a great start that we didn’t even know we were getting!

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