If you’ve decided to take the process of getting a home loan into your own hands, ensuring that the great rate you’ve secured remains competitive over the long term is an ongoing process.
With an ever-changing market and changes RBA cash ratekeeping control of your home loan rate can save you charges in the long run.
We’ve already talked about the benefits of using a mortgage broker, but if you’re determined to go it alone, there are some key considerations to take into account when looking for the best loan rate.
Aaron Christie-David is Managing Director and MFAA Certified Funding Broker at Atelier Wealth, a Top 100 Broker. He finds the best mortgage products for his clients daily and shares his expert insight on how you can succeed in doing the same.
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Why it’s important to watch your interest rates and shop around
Paying a higher interest rate on one of the most important purchases of your life can unnecessarily drain your finances, and with banks potentially changing their rates every six months, it pays to keep an eye on the market. .
It avoids unnecessary expenses
In the current economic climate, where the CPI fell to 5.1% at the end of the March quarter, many Australians are feeling financial hardship and are looking for ways to ensure that every dollar they earn is used to advisedly.
“With inflation at 5.1% and wage growth at 2.3%, people are in the negative going to work this year,” Christie-David said.
“I can understand the real concern. That’s when we have to have a real honest conversation, look at the budget and say ‘well, something’s got to give’.”
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You will follow the evolution of lenders’ rates
The other important factor is that banks can change their rates every six months, which means that you might only have a competitive rate for a very short period of time compared to the overall term of your loan.
“Banks can reassess loans every six months,” says Christie-David. “It doesn’t guarantee you’re eligible for a discount every six months, but every six months, call them – be that customer.”
“Keep your finger on the pulse to keep your lender in check,” he continues.
“They have to work to keep your business, which means you have to hold them accountable for the rate they offer new customers, especially if it’s a better rate than what you’re getting now.
“We don’t have to pay more than we are entitled to pay.”
Always negotiate with your current lender first
“There’s a misconception that people can’t take a better rate from a comparable lender and ask their existing lender to price match, but they absolutely can,” says Christie-David.
“Generally the big four will match on price and the next tier of lenders will also compete on price.”
Christie-David begins by negotiating with a client’s existing lender, a strategy he urges individuals to try in order to avoid the administrative pain of switching.
“Our recommendation is always to go back to your existing lender after consulting online resources,” he explains, referring to platforms that compare interest rates and loan products.
“Going through a refinance process can be quite arduous for a lot of people,” he adds, where there is the “cost” of the time and effort required for things like changing lenders and banking services. by Internet.
“There’s a misconception that people can’t take a better rate from a comparable lender and ask their existing lender to price match – but they absolutely can.”
And sometimes the best rate you find won’t be with a competitor, but your own lender trying to attract new customers. Christie-David also advises talking in this case.
“Existing customers get a price and new customers sometimes get a better rate, and you might say ‘well, wait, I want what new customers get for my loyalty’ – you can call your lender about it.”
If your lender won’t budge, try this
“If you don’t get the chance to ask your lender to reprice or refine your loan, the barefoot investor has a great script on how to engage a bank’s last line of defense, which is the retention team,” says Christie-David.
“If you say you want to cancel your loan and go to another bank, their retention team kicks in and they actually have much more discretionary pricing.
“They don’t want to lose a customer, so if you’re about to get released, at the 11th hour they can turn around and say they’ll match prices with the other lender.”
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Christie-David prefers to avoid people having to go this route, as it’s not always guaranteed, but it’s still an important insight into the industry.
He also understands that some people are more comfortable negotiating than others, but don’t let that deter you from looking for a better rate.
“What can they say is worse? No? Stand firm and if another bank offers a great rate, ask yourself, ‘Can you match the price?'”
Understand the difference with online lenders
The biggest players will not compete with those found exclusively in the online space.
“The big four banks and the next tier of lenders cannot physically match or beat online lenders exclusively because they offer different services,” says Christie-David.
“I call them the IKEA of home loans because you have to do it all yourself. If you’re willing to fight to arrange your own loans, then great, you can definitely save money. You just have to do it efficiently the work of a broker, which can take time.”
“The trick isn’t just to get a better rate, you’re also trying to pay off your loan as quickly as possible.”
It is also important to think about what you will need from a loan in the foreseeable future, because a cheap rate is not the only important feature of a loan product.
“Online lenders are great for offering an affordable product, but not everyone qualifies with them. They’re not for everyone, they’re for the pay-as-you-go type of borrower, pretty simple” , says Christie-David.
“With their policies, if you want to withdraw money for renovations for example, they also have pretty strict restrictions on what you could do in the future.”
Red flags when looking for a more specific loan
The best loan product for you will not just be the best rate offered. Think about your lifestyle and your needs and what might change over the next five to ten years.
term of the loan
Switching lenders to consistently get the best rate could have an unintended impact on your loan term.
“Be careful not to constantly push the term of your loan by 30 years every time you change lenders,” says Christie-David. “That’s the flip side of cutting and switching more banks or lenders – often you don’t actually reduce the term of your loan.
“The trick isn’t just to get a better rate, you’re also trying to pay off your loan as quickly as possible. So if you really want to change that term after changing lenders, we recommend trying to do so after settlement of the loan.”
Those who negotiate a better rate with their current bank or lender will not have their loan term renewed.
Fixed rates versus variable rates
Christie-David thinks fixing a rate has become popular in recent years when interest rates were historically low, but if you want to do it now you might “be a little late for the party”. But this is not necessarily negative.
“If you have a fixed rate loan, there may be limits to trying to pay it off early. For example, some don’t allow you to make additional payments over $10,000 per year and you not link an offset account on a fixed rate loan.
“If you know you’re going to have extra money at some point, you’ll want the best of both worlds, which is a part-fixed, part-variable loan.”
Comparative prices and applications
Savvy searchers are aware of two key prohibitions when looking at rates and lenders: comparing rates on different days and submitting applications to multiple lenders (which can put marks on your credit report).
“First, try searching for same-day rates so you get the same comparison rate,” says Christie-David.
“Second, beware of submitting applications, especially to online lenders. Otherwise, you may have an active credit file, which may work against you. You will have credit applications in your name that you don’t go to deal, so do your research, but only apply to one lender.
Convenience and time
If you are someone who considers yourself busy, going the online lender route or trying to handle this as an individual may not be the right choice.
“How much work do you have to do to chase the bank or the lender? If you are a busy person, spending a lot of your precious time chasing a lender about your mortgage may not be the right decision, whichever case you I would go with a broker who would handle it for you,” says Christie-David.
Convenience also depends on the number of financial products you have from different institutions.
“Beware of how many different products you have split between different banks or lenders. From credit cards to car rentals to home loans to savings accounts, you can quickly accumulate all these different accounts that can also be difficult to follow. said Christie-David.
For our explanation of what mortgage brokers do and if you should use one, click here.