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How I got my home loan lender to cut my rate

Property

Nick Bendel, RateCity.com.au

I just saved almost $3,000 on my investment mortgage – and it took less than 20 minutes’ work.

How? All I did was call my home loan lender and threaten to take my business elsewhere. The Bank responded by reducing the rate on my property from 4.59 per cent to 4.49 per cent.

I would’ve saved even more if not for two facts. First, about half my mortgage is fixed and half is variable, and The Bank would only discount the variable portion (unless I was willing to pay a break fee on the fixed portion). Second, my home loan isn’t considered big in today’s real estate terms: the variable portion is just $144,000.

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Regardless, thanks to the discount, I’ve saved $2,831 over the life of the 28 years remaining on my loan.

If my entire mortgage ($274,000) had been variable, I would’ve saved $5,386.

Mortgage of $144,000 over 28 years

Repayments 4.59% 4.49% Difference
Monthly $762 $754 $8
Total $256,071 $253,240 $2,831

You might’ve noticed that I got The Bank to lower my mortgage just two years into my 30-year loan term.

So don’t believe anyone who says you need to spend five years ‘proving’ your loyalty before a lender will reward you with a reduction. The Bank wasn’t rewarding me; it was trying to stop me taking my business elsewhere.

It took three phone calls, totalling 18 minutes, for me to get my discount. Let me take you through those calls so you know what you might face if you do battle with your lender.

Call #1 – I threaten to leave

The first step in getting the discount was to phone The Bank, with my initial contact being with a regular customer service rep.

I told her that I wanted to switch my mortgage to The Rival, which was offering a better deal.

She responded by saying she could get somebody from the customer retention team to call me back about possibly offering a cheaper rate.

Call length: 9 minutes

Call #2 – The Bank fights for my business

Later that day, I was called by an employee from The Bank who specialises in handling home loan customers who are threatening to go elsewhere to find the best home loan rates.

It’s worth paying close attention to our conversation (which I’ve paraphrased), because your mortgage lender might use similar negotiating tactics if you ask for a discount.

The conversation began with me saying that I planned to move to a rival lender that was offering a “substantially lower” rate.

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The Bank employee asked me who the lender was and what rate they were offering.

“The Rival is offering me 3.69 per cent,” I replied.

Crucially, I was able to give immediate answers to both questions. That showed her that I was serious about switching. If I had stumbled over my reply, she might’ve thought I was making an empty threat.

“Were you looking at getting any further lending?” she then asked.

I told her I wasn’t.

“The reason I ask is that usually we only match loans of at least $500,000. But I’ll send a request to our pricing team and see what rate we can get you,” was the gist of her reply.

“Do you realise you’d have to pay a break fee to get out of your fixed loan? Unfortunately, we can’t waive that fee, because The Bank borrowed the funds at a higher rate, which means we’d be at a loss if we reduced your fixed loan. But I know we can negotiate on the variable loan.”

The employee promised to call me back as soon as she received an answer from the The Bank’s pricing team.

Call length: 6 minutes

Call #3 – I get my discount

The next day, she called me back.

She told me that The Bank’s pricing team wouldn’t be able to match The Rival’s interest rate, because The Rival was an online-only lender, which meant it could offer much lower rates.

“The best they can offer is a 55-point discount on your current rate, which will give you a rate of 4.49 per cent,” she added.

Initially, I was delighted – a discount of 0.55 percentage points! But then I did the calculations in my head and realised the numbers didn’t seem to add up.

“If I’ve done my maths correctly, you’re saying I’m currently paying 5.04 per cent, which isn’t correct,” I said.

“No, you already have a discount, so you’re currently paying 4.59 per cent. Our standard variable rate is 5.04 per cent. So we’ll increase your discount to 55 basis points for the life of your loan,” she replied.

“So this will be a discount from 4.59 per cent to 4.49 per cent?”

“It will be a discount from 0.45 per cent to 0.55 per cent.”

“But I’m currently paying 4.59 per cent, aren’t I? So I will be discounted from 4.59 per cent to 4.49 per cent?”

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“Yes, which is 10 basis points.”

Was the employee following The Bank’s script when she repeatedly described my discount as 55 basis points rather than 10, or was it a coincidence? Either way, it highlights how important it is for you to know your interest rate and other key details of your home loan before you ask your lender for a discount. Knowledge is power, and you don’t want to be at a disadvantage during the negotiation.

In the end, I agreed to keep my mortgage with The Bank and was told the discount would take effect immediately.

The call ended with the employee offering one final piece of interesting information.

“When the fixed term ends, we can always look at revisiting the rate again, depending on what the market is offering. We do matching – but mostly with the big four.”

Call length: 3 minutes

About Nick Bendel

Nick Bendel is RateCity.com.au’s property editor. He is an experienced journalist who has written for a range of real estate and mortgage publications. He covers property prices, rental trends, housing finance stats and home loans news. He loves getting elbow-deep in the latest ABS, APRA and RBA data.