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How to talk your way to a cheaper home loan with your bank

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The Reserve Bank of Australia can cut its cash rate as much as it wants, but banks are not obliged to follow.

Politicians then love to tell Australians to "get a better deal" by switching lenders. But many Australians find that process cumbersome and intimidating with all the effort and paperwork required.

But there is something else you can do if you're frustrated at how high your home loan interest rate is. Pick up the phone.

Talking to your current lender is one of the simplest ways to get a better deal with your mortgage, that could end up saving you thousands over the life of the loan.

"There's an interest rate cut waiting for you if you simply ask for it," said RateCity spokesperson Alex Ritchie.

"Borrowers need to shop around and be prepared to walk away if their lender doesn’t offer them the discount they deserve."

While negotiating with a behemoth financial firm might seem intimidating, it's fairly easy once you're put onto the manager responsible for your loan.

"Anyone can talk their way into a cheaper home loan, they just have to know what to say," Ritchie said.

The catch is that you need to be informed before you talk to the lender, so you know what to ask for. Knowledge is strength when negotiating.

Definitely know your current interest rate, research what your lender is offering new customers (which are often more attractive than what they're giving existing clients) and check out what its competitors are offering.

But the best way of maximising your chances of negotiating a lower rate is to be a good borrower in the lender's eyes.

These factors, according to RateCity, will get you in the bank's good books:

  • Living in the property

  • Own 20 per cent or more of the property

  • Employed full time

  • Paying off both principal and interest

Not having these attributes doesn't automatically eliminate you from contention though, so still try talking to your bank.

I personally negotiated a lower rate in the past despite not meeting some of the above conditions, because I had a spotless track record of repayments and kept a large sum parked in the offset account for many years.

But what if after all that, the lender refuses to offer a better deal?

Threaten to walk.

Ask for a mortgage discharge form, which is the first step to moving your loan to another provider.

You are a customer worth hundreds of thousands of dollars – alarm bells will start ringing if you ask for that form and the bank might just come to your party.

"At the end of the day, if your home loan provider is still not willing to offer you a lower rate you should be prepared to refinance – if this is a financially viable option for you," said Ritchie.

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