How to Negotiate a Lower Interest Rate on Your Home Loan?
There’s nothing more annoying than realising you’re overpaying interest on your home loan. It does feel like the repayments will never end, doesn’t it? Wouldn’t it be great if you secured a lower interest rate on your mortgage? Homeownership will become more affordable and you might save funds for investing and retirement. Chances are you could even pay off the loan sooner.
It isn’t impossible to get the cheapest interest rate on a home loan. The key is discussing better terms with your lender. It’s worth reviewing your property loan regularly to keep an eye out for the lowest interest possible. In this article, we’ll discuss some tips to effectively negotiate a lower mortgage rate on your home loan.
Understanding Interest Rates
It may sound boring, but the first step in negotiating your interest rate is to research the current market. The better you prepare, the stronger you’ll be in a position to negotiate better. You can begin by knowing your present mortgage rate and comparing it with what your lender offers to potential borrowers.
Banks reward new customers with special discounts but often neglect their existing loyal clients. If you’re paying a higher rate, contact your lender and ask for the same rate new borrowers get. They may be willing to negotiate to retain their existing clients, provided you have a strong repayment history.
Additionally, ensure you are aware of:
Your mortgage rate
Whether your loan is variable or fixed
If your repayments are Principal & Interest (P&I) or Interest Only (IO)
Once you understand the true cost of your loan, start exploring the ways to make changes to your existing one. It will automatically assist in lowering your interest rate. For instance, if you're only paying the interest on your loan (IO repayments), you might not be using your funds effectively. By simply converting it to Principal and Interest (P&I), you’ll be eligible for a discount. Apart from that, the following factors can further contribute to reduced mortgage costs:
Your credit score
Reserve Bank of Australia (RBA) Cash Rate
Loan tenure
Type of your loan repayment
Loan-to-value ratio (LVR)
Home loan type
Repayment amount and frequency
Competition among different lenders’ interest rates
Your income and employment stability
Debt-to-income ratio
Remaining loan completion time
What’s more, you should know the difference between the comparison rate and the interest rate. While the latter is the amount of loan charged as interest, the former includes the interest rate and additional loan fees you’ll pay. The comparison rate can help compare different loans accurately, without expecting any surprises. It typically covers:
Application fees
Loan establishment costs
Legal and admin fees
Settlement costs
Monthly fees for account-keeping
Research Competitor Offers and Compare Them to Your Current Loan
Before you talk with your lender, it’s reasonable to do some competitor research. You can also explore if there are cheaper interest rates available elsewhere by using websites that compare home loans. Sometimes loan creditors can get reluctant to reduce the cost to match the new borrower rates. Hence, it’s worth knowing what other lenders have to offer.
Just make sure the comparison you make is based on the same factors mentioned above. Homeowners can also get advice from mortgage reviewers like us. At Mortgage Friend, we examine basic details related to the conservative value of your property. After reviewing, we’ll advise whether re-negotiating or transferring your existing mortgage would be more advantageous.
Improve Your Credit Score
Are you expecting to lower your home loan interest? If so, make sure you are a responsible borrower. Missed loan repayments, a poor credit score, and income instability may put you in the riskier loanee category. It may also negatively impact your ability to get cheaper home loans. Lenders only want creditors who have
Good credit score
No record of missed repayments
Steady income
A low loan-to-value ratio (LVR)
Don’t worry if you aren’t an ideal borrower as there are ways to rectify past mistakes. For starters, make regular, on-time loan repayments a habit. By doing so, you can justify requesting a reduced interest rate. Moreover, timely repayments will have an immediate positive impact on your credit score.
Are you aware of the fact that your CIBIL score influences mortgage rates? The higher your credit score, the lower the rate of interest, and vice-versa. Therefore, it’s important to build a strong credit profile. Here are some actionable tips for improving your score before negotiation:
Monitor your CIBIL from time to time
Make regular EMI payments
Build genuine savings
Pay credit card outstanding to the full every month
Keep an eye on your credit card usage ratio
Be wary of the Debt Settlement option
Improve your debt-to-income ratio
The Negotiation Process
When approaching your lender to negotiate a lower interest rate, be prepared to communicate effectively. At this stage, you have a lot of leverage to confidently negotiate for improved terms because:
You’re a model borrower
You are aware of the market prices
You know the inconsistencies in your and new customers' interest rates
Now, it’s time to prepare your approach. Here are some tips for effectively communicating with lenders to negotiate like a pro:
Come Well-prepared: Before reaching out to your lender, list the attractive features that their competitors have. When you have specific examples of better deals in hand, it shows you are sincerely looking for a better price.
Highlight Your Financial Stability: Emphasise your financial stability to your lender. Highlighting your strengths can bolster your position during negotiations.
Don’t Be Afraid to Walk Away: Communicate confidently that you aren’t hesitant to consider other lenders. By emphasising that you are open to exploring options, you motivate them to propose a compelling counteroffer.
Demand Beyond Just Interest Rates: It’s essential to consider other aspects associated with home loans, which may benefit your financial situation. Those include:
Offset Account: It allows borrowers to offset the mortgage interest costs through their savings accounts.
Redraw Facility: This provision lets you pay off more than the minimum loan repayment.
Other Terms: Banks may be more flexible to make changes in the payment schedule or length of the loan. So, you can obtain a better deal advantageous to your financial situation.
Strengthen Your Position: If your lender agrees to a better deal, do ensure to get the amended conditions via email or in writing. This tangible record allows you to get pre-approved lower interest rates without any confusion.
Considering a Mortgage Broker: Mortgage Friend is Here For You!
If you’re not a confident negotiator, let an expert cope with lenders on your behalf. This is where the help of mortgage brokers comes in. They can strengthen your application, compare fixed home loan rates, and provide better offers. Moreover, they have access to multiple lenders to propose the best mortgage pricing. Other benefits of partnering with an experienced mortgage broker:
Expert Guidance
Money and Time-saving
Personalised Support
Convenient Process
Book an appointment with our consultant at Mortgage Friend to discuss your situation. We will give you a property mortgage review service at no cost. After reviewing your case, we’ll negotiate in your place to encourage your lenders to offer the cheapest interest rate. If they disagree with the terms, our mortgage broker partner can refer to other providers with better deals. Contact us on 0407949044 or email us at jkassoc@arc.net.au at your earliest convenience.
