Three rate rises in three months – it’s a tough ask for home owners, but it is possible to ease the financial pain.
Since its board meeting in May, the Reserve Bank has hiked the official cash rate by 1.25 percentage points to 1.35 per cent – and warned that more hikes are on the way.
Graham Cooke, head of consumer research at Finder, said the combined rate hikes to July would add an extra $424 to the monthly repayments on a typical mortgage, costing the average home owner an extra $5000 over the course of the year.
But home owners don’t have to just grin and bear it – there are ways to save on repayments.
Here are five steps to get the best deal from your lender – plus advice on when you should switch banks.
1. Know the rate you are paying
Knowing your current home loan rate provides a starting point to understand how your loan shapes up against the broader market.
But a Mortgage Choice survey of 1000 Australians found 55 per cent could not name the rate they are currently paying on their mortgage.
If you are unsure about your rate, just pick up the phone and ask your lender.
2. Research the best deals available
There are still home loans charging less than 3 per cent interest.
Our tables below show the lowest-rate loans listed on Canstar’s database – and none of the big banks make an appearance.
On a variable rate loan, you could potentially pay as little as 2.35 per cent with the likes of Credit Union SA, or 2.44 per cent with Homestar Finance.
If you are keen to lock into a fixed rate, Laboratories Credit Union (LCU) has a one-year rate of 2.35 per cent, though a good selection of other lenders are offering a 1-year rate below 3.5 per cent.
The catch is that these super cheap loans may not be for everyone.
Some of the lowest-rate mortgages have a maximum loan-to-value ratio (LVR) of 60 per cent, meaning you need at least 40 per cent equity in your home to be eligible.
Nonetheless, several of the low fixed-rate deals listed only demand 10 per cent – or even 5 per cent equity, which should be manageable for many home owners given the double-digit rise in home values seen over the past year.
3. Flex your customer muscle
The mortgage market is intensely competitive, and no lender enjoys losing a customer.
So do not be afraid to let your bank know you want a better deal.
Deslie Taylor, principal of Mortgage Choice in Ormeau, Queensland, said: “We recommend clients approach their mortgage broker or lender on a six-monthly basis. Ensure you are armed with what is on offer in the market – that is, rates, promotions and rebates to refinance.
“If the lender is not prepared to offer a better rate – and you are confident you can get a deal with another lender – ask to speak to the discharges department to begin a discharge process.
“Once the discharge department receives your request you will normally have a call from the retention team, who will hopefully offer a better rate and a nice deal to retain your business.”
4. Consider switching to a better deal
If your lender responds with a meagre rate discount or will not come to the party at all, it could be time to move on.
More than 60 per cent of borrowers surveyed by Mortgage Choice identified refinancing as a “hassle I’d like to avoid”.
But refinancing a home loan can mean pocketing big savings.
Ms Taylor says crunch time comes for many home owners when they speak with friends or family about the rate they are paying.
A sense of not feeling any love from a lender can be a big motivator too.
“If we approach a client’s lender, and they do not offer a better rate or show no interest in retaining their business, the client will normally feel offended and opt to take their business elsewhere,” Ms Taylor said.
5. Bring in help at no extra cost
Yes, refinancing a mortgage can be a hassle you do not need right now.
But even if you are ineligible for one of the super-low rate loans listed in our tables, Reserve Bank data shows lenders continue to offer their best deals to new customers – with the rate difference between new and established loans averaging 0.46 per cent.
On a $500,000 mortgage that rate gap could put an extra $100 back in your pocket each month – extra cash that plenty of us could do with right now.
If you are pressed for time, a mortgage broker can do the hard yards organising a refinance on your behalf.
It is a service home owners should not have to pay for as brokers are paid by lenders, not the clients they represent.
Or, to get an idea of how much you could save by moving to a new lender, head to MoneySmart’s mortgage switching calculator.