You know that old adage: “Ask and you shall receive”? What if I told you there was a tactic to get a home loan discount that means you no longer even have to ask.
And possibly a bigger discount than if you tried to bargain and beg.
It’s a mortgage mercy that comes none too late for the tens of thousands of Aussie households who have unwittingly – and probably still unknowingly – become trapped in a type of 'mortgage prison'.
What exactly do I mean by that? Well, the most recent rate rise took the total rises imposed by the Reserve Bank of Australia (RBA) to 250 basis points, since May.
Read more from Nicole Pedersen-McKinnon:
The problem is that this is the exact amount new mortgages taken out before October 6 last year were stress tested to.
Stress testing refers to the income buffer you need to be able to refinance.
It’s what you must prove to get approved.
Which means many households can no longer get a new approval and are locked into – increasingly expensive – loans. (And yes, you may not yet know it.)
If the RBA hiking campaign continues, mortgages taken out after October 6, 2021 will also become un-moveable.
Since that date, lenders have been required to apply a 300-basis-point stress test. So just two more 25-basis-point rises will see these borrowers stuck too.
But just because you can’t move to a cheaper lender – it’s very likely you are paying over-the-odds - doesn’t mean you can’t slash your interest rate.
There is a simple trick to getting a rate discount (and likely a large one) from your existing lender.
Without a complex and potentially stressful negotiation.
In one deft money move.
How to get a one-step mortgage discount
Forget getting on the phone and trying to play interest-rate hard ball: “I’ll leave for a cheaper loan.” “I will.” “Promise you…”
The most effective way to get a discount is to officially reveal an intention to leave.
With mortgage refinancing at record highs in June and August, lenders are desperate to stop borrowers from ditching them.
So jump online or call and say these magic words: mortgage discharge authority form.
This is the document that tells your lender you want to close your loan.
It’s game over for them.
And it is triggering dedicated what-are-known-as mortgage-retention teams to swing into action to, yep, keep your custom. And interest.
You may need to nominate the product to which you could switch.
This will give them the interest-rate benchmark to match so know that quality, comparable products to a big bank package mortgage are charging down in the low four per cent range.
Such deals exist at tic:toc and Well Home Loans, to name just two.
Note: These loans are backed by authorised deposit-taking institutions and not from nonbank lenders; they therefore carry genuine offset accounts rather than redraws in disguise. Remember, redraws in disguise landed people in trouble at the beginning of the pandemic and savings housed in these loans are not subject to the Australian Government Deposit Guarantee.
“But I can’t GET a new loan,” you say
Vitally, without a fresh assessment of your serviceability for a new loan – that 250 or 300-basis-point buffer check – your lender will have no clue if you wouldn’t qualify.
The fact that you couldn’t actually move bears no relevance to this situation.
All they know is they don’t want you to.
Enter the mortgage retention team.
Google largest-lender-in-the-land “CBA” and “mortgage refinance authority” and you will find a page that even says: “Discharging to refinance? Make sure you're getting the most out of your CommBank home loan before you consider refinancing. Call us on 1300 219 166.”
That statement could not more plainly say they are willing to make cost concessions.
But you will do best with that cut-to-the-chase discharge authority form.
And it is as easy to cancel as it is to submit – indeed, there is no need to even bother as the outgoing bank WON’T chase you to settle.
What you are doing is calling your lender’s ultimate bluff.
They can’t see your cards.
IF those cards don’t turn out a winner – delivering you at least a small discount but I have heard of as much as 242 basis points off – you can simply fold.
By which I mean, disregard the form; no harm done.