Wages growth has stagnated and unemployment is historically high, but cash-strapped households can stretch their money a little further by slashing their mortgage costs.
Although the average mortgage rate has fallen over the years to just 3.43 per cent, many customers can make big savings by negotiating a better deal with either their existing lender or someone new.
But if borrowers want to get rates closer to 2 per cent, they will need to put in some work.
“Research and preparation are more important than any other step in the process,” Canstar financial services executive Steve Mickenbecker told The New Daily.
Arm yourself with knowledge
The first step is to do your research, which should involve more than simply scoping out what other lenders are offering.
Mr Mickenbecker said borrowers should review three key factors: Their credit score, their income and job security, and the actual value of their home.
This last point is relevant as the pandemic has already dragged down property prices and will continue to weigh on them – pushing some home owners into negative equity.
Lenders are unlikely to offer better deals to owners in this situation, as they risk losing money if the borrower defaults.
And if borrowers are uncertain about their employment and income status, or have a poor credit rating, then their chances of negotiating a better deal will be even lower, as the lender will have little faith in their ability to repay.
You will need to have a clean bill of health in all three areas before a lender agrees to offer you a more competitive rate.
But Mr Mickenbecker said borrowers who receive JobKeeper wouldn’t automatically be ruled out – so long as they could confidently explain why they would soon return to normal employment.
Making the call
Before you pick up the phone, make sure you know your current rate, what other lenders can offer, and how much you would save by switching.
And then put together a household budget demonstrating how you can pay for the revised rate.
Take note of what your current lender is offering new customers too, as most banks offer cheaper rates to lure them.
Once you have them on the line, start by telling them the better rates on offer elsewhere.
Be sure to give examples from different kinds of lenders, such as small and medium banks and non-bank lenders.
It doesn’t hurt to already have an application or approval with a rival lender at this point – if it looks like you might seriously switch to another provider, your bank is more likely to pull out all the stops.
“Most of the people you deal with will have some authority to give a discount depending on your situation,” Mr Mickenbecker said.
“They’re quite ready to do that to keep your business.”
Next, break down your household budget and explain how much money you can save by moving elsewhere.
Some lenders will push back by saying they offer more security or better customer service than their rivals, but stand your ground and explain that these ‘benefits’ are not worth the extra money you are paying each month.
Finally, keep in mind that if you’re paying something closer to 3.5 per cent, you’re unlikely to negotiate your lender down to 2.15 per cent, but they should be able to give you a sizeable discount.
As the above table shows, even a 0.2 percentage point decrease on a 3.43 per cent variable rate mortgage would deliver home owners with a typical $400,000 mortgage monthly savings of $45 and total savings of $15,893 over a 30-year loan.