Yahoo Finance Forget the RBA: Here’s how borrowers are instantly saving $582 per month
Merry Christmas to you too, Reserve Bank [if I could, I would insert an eye roll emoji here].
Eight rises in a row, totalling 300 basis points, has added $834 to the monthly mortgage repayment on a $500,000 home loan since May.
That is probably the biggest pain point in your budget. But it doesn’t have to be.
Just in time for Christmas, a behind-closed-door mortgage war has been blasted out into the open.
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Commonwealth Bank (CBA) has come clean with what’s been going behind the scenes with the Big Four, which has always been to advertise a rate that is high, then offer secret deals and discounts depending on loan size, loan percentage, and even location.
Meanwhile most other lenders operate on a what-you-see-is-what-you-get basis.
This extra intel is actually a Christmas gift, because it means an opportunity to slash loan interest.
How big bank pricing works
The problem is that the newly disclosed discounted rates of CBA – and soon, you would imagine, the rest of the big four – are only available to new customers.
Or existing customers who increase their loan size.
But all is not lost if you’re currently with one of our nation’s largest lenders.
Here’s what you need to do in three simple, saving steps.
Step 1: Tell them you KNOW
Though CBA has put its specific tiers and ‘money off’ on its website, they are not shouting about it.
Call up and tell it (or your own big bank) that you know.
You will see below that the best rates are reserved for customers with a 40 per cent chunk of equity, or 60 per cent loan-to-value ratio – this gets you a rate of 4.57 per cent with CBA.
See the table below and note that the Big Four have all already announced they will pass on the full 25 basis point rise this week, from between the 16th and 20th of December.
Best package (or offset available) variable rates for 60 per cent loan-to-value ratio
So literally call them on it. Say: “Hey, I’m a loyal customer. Why don’t you share the love with me, the person who has been giving it to you.”
If your big bank doesn’t come to the party to match what it is giving other customers, that brings us to the next approach…
Strategy 2: Call their borrowings bluff
This is not just about growing their loan book, but also protecting them.
They want to keep market share.And the battle for your borrowings is fierce.
The fact is that there are still far cheaper lenders out there.
The table below – note all rates will likely also go up by 25 basis points some time before Christmas – shows that there are quality, comparable loans to the Big Four for almost half a percent lower than CBA’s new offer.
Top 5 ADI backed variable rates with an offset account for 60 per cent loan-to-value ratio
When I say “quality” and “comparable”, I mean that these loans are backed by authorised deposit-taking institutions, like the Big Four.
That means they can offer genuine offset accounts that are quarantined from your loan itself. This is an important tool, and distinction, for safety and flexibility.
An all-in-one-style of account instead ‘mixes up’ your money, if you like.
That means a bank might be able to stop you from getting it back. Also, it comes on the Australian Taxation Office (ATO)‘s radar, which is not what you want if you decide at a later date to turn your Home into an investment property.
Anyway, your next rate play is to get from your lenders website what is called a mortgage discharge form and fill it out.
This form tells your existing, maybe big bank lender, that you are going to leave. Name a cheaper alternative loan, perhaps from the table above.
You see, what lenders are not disclosing publicly is that they currently have mortgage retention departments authorised to often match whatever deal you can get elsewhere, in order to keep you.
You may simply get a phone call going, don’t switch, we will look after you to exactly the same degree.
If you don’t, however, don’t fret. You have lost nothing because your discharge can only be acted upon if you go ahead and line up another mortgage and your existing lender is paid out what it is owed on your property.
The form will just lapse. Unless…
Strategy 3: Execute an interest savings switch
Switch to one of the best deals and your savings could be huge.
Say you are on a big bank rate of 6 per cent right now, and you switch to down near four per cent. On a typical $500,000 mortgage over 25 years, you would save $582 a month.
Just like that.
The real opportunity comes if you, however, up stumps but still stump up. By this, I mean, move your mortgage, but do not ‘move’ the amount of your mortgage repayment.
If you instead, bearing in mind that you’re already used to paying this amount, simply keep repayments the same each month, your savings go stratospheric.
In fact, you shave seven years and more than $261,000 off your loan term.
Jump on my free app to calculate your own precise potential savings: My Mortgage Freedom Date on Android or Apple.
Remember, that’s for doing nothing more than what you are already used to. And it gets you very neatly out of harm’s way of the RBA.Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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