This is the sort of thing you hear from financial commentators and mortgage brokers: ‘If you want a better deal, call up your bank and ask for one!’
The big problem with this is that it often comes out of nowhere, and the advice, if you can call it that, stops there. Literally, they don’t say anything more than that.
Related article: Has your bank passed the cash rate cut on?
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Related article: Should I choose a variable or fixed interest rate home loan?
So here, in this column, I’m going to spell out for you, based on my own experience, and others that have been in contact, how to get more money from your bank.
On Tuesday the 4th of June, the Reserve Bank lowered the cash rate target by 0.25 per cent to 1.25 per cent – the first move in nearly three years.
Following damning revelations from the banking royal commission, the big four banks felt enormous political and social pressure to pass on the Reserve Bank cut in full.
So, what did they do?
NAB and Commonwealth Bank agreed to pass the rate cut on in full.
Meanwhile the ANZ and Westpac decided to pass most of the cut onto borrowers, but also pocketed some of the savings for themselves.
It may not automatically apply to you - here’s why
Here’s the thing.
It’s almost irrelevant what the banks announce they’ll do with an RBA interest rate cut.
The interest rate they promise to drop in their media releases and newspaper announcements is the Standard Variable Rate.
The Consumer Action Law Centre tells me that most Australians aren’t on that rate.
The Commonwealth Bank did promise to pass the rate cut on in full to all of its variable rate customers, but as far as I’m aware the other banks haven’t said as much.
The bottom line?
Even if your bank has publicly promised to pass on this month's Reserve Bank rate cut, it may not automatically apply to you.
Tell me what to do
I’ve got a mortgage, and like many people in my position, when I heard the Reserve Bank had lowered the cash rate, I wanted to know if my bank was going to follow suit.
A quick Google search told me it was. Good news!
However, my next thought was, ‘what happens next’? When am I going to see more money in my bank account?
Surely, I thought, the bank will explain to me the next steps.
I checked my letter box… nothing. I checked my email… nothing. I checked my online bank account… nothing.
The following day I wrote an email to my bank manager – the same person I sat down with to sign my mortgage.
I politely asked her, given the bank had agreed to pass on the Reserve Bank’s rate cut, if I was going to pay less on my mortgage.
Roughly 20 minutes after sending the email, I received a call from her on my mobile phone.
She was coy at first, asking how she could be of assistance.
I reiterated what I had said in my email, and she said, ‘yes’, the interest rate on my mortgage was going to come down.
Then came the surprise: she went on to say that, given I had been with the bank for over two decades (I sat up the account with my grandmother as a teenager), she was going to offer me a discount over and above what the Reserve Bank had done – 0.35 per cent to be exact.
In the space of 30 minutes, after an email and a phone call, I had just saved myself over $1,000 a year.
Don’t risk missing out
You need to be aware that some borrowers are more at risk than others of missing out on a rate cut.
If you’re on a variable rate, for example, and your bank hasn’t specified that your mortgage product is in line for a rate cut, give your bank manager an email or a call and check if you’re eligible.
If you’re already on a discounted rate, again, give your bank manager an email or call and check if you’re eligible for a further discount.
Unfortunately, for those on a fixed rate, this round of interest rate cuts doesn’t apply to you. If, however, a portion of your home loan is fixed, and the other portion is variable, you will get some benefit.
Playing hard ball
You’ve got to be in it to win it.
If you think you’re not in line for a rate cut, make sure you still pick up the phone and ask for one.
Why not? The worst your bank can do is say ‘no’.
Several people I have spoken to recently said when their bank refused to play ball, they threatened to switch banks.
There have been some mixed responses from that. Some banks have given some ground, while other banks have said, ‘fine, see you later’.
In most cases the borrower has found themselves paying less on their mortgage.
Savings on many of the big four banks' owner-occupier principal and interest loans will range from $44 to $62 a month, based on a $400,000 mortgage paid over 30 years.
Of course, the point needs to be made that if the rate on your mortgage goes down, and, for whatever reason, you don’t see less money taken out of your bank account, while you won’t see an immediate saving, ultimately you’ll pay your mortgage off more quickly because you’ll being paying more than you need to now.
C’mon guys, it’s time to take back control of your finances.
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