Today is undoubtedly the best time for Australian’s to apply for a mortgage, prices between lenders have never been so competitive and borrowers can really push the screws to get rock bottoms rates. Thanks to the rise of several mortgage managers over the last two decades, interest margins have dropped from 4% (back in the 90s) to 1.5-2% that are common today.
Lenders are fighting for clients so much that David Morgan, the chief executive of Westpac labelled several low cost mortgage deals as “irrational”. While it may be true that some lenders are luring borrowers in with rock bottom deals, not every lender is following suit. Some prefer to sit on their hands until the customer asks for special rates, which makes sense from a business point of view.
Remember, the goal of the borrower is to receive the lowest rates possible, while the lender wishes to give them as little discount as they can possibly get away with.
Note: Due to the intense competition in the markets, borrowers have the ball in their court and the harder they push, the better deals they are going to receive.
Research the lenders
Research seems to be a common theme in our articles and for good reason, with it homeowners and investors can save much more. Borrowers should be researching several lenders to see who are offering the best rates, features and flexibility. This way they can walk into bank A and explain that Bank B is offering a 0.75% discount, and what can they do to improve on that deal. Other ways to conduct research include:
Mortgage brokers : Aside from checking rates with several lenders, getting information from mortgage brokers is never a bad idea. Borrowers should look for brokers who specialise in markets based on their needs, some will be extremely knowledgeable in professional markets while having a lack of understanding for low doc loans. We advise going to at few different brokers as it’s impossible for one to know all the best rates with so many offers constantly changing.
Word of mouth: Friends, family or work colleagues can be another resource of information. Perhaps someone has just gone through the whole process of looking for the best mortgage deal and can provide a lot of the brunt work on where to look, how to negotiate and what to realistically expect.
Don’t expect the moon and the stars
When searching for a mortgage, we see the borrower asking for everything including the kitchen sink. Rock bottom interest rates, free redraws, no application fees, Internet banking and 24/7 customer support all come at an expense to the lender. The average cost to lenders is about $1,000 when setting up a new mortgage for clients, so unless lending large sums of money ($500,000+) don’t expect too much wiggle room on certain aspects of the loan.
Borrowers need to think logically when comparing loans between lenders to have room for negotiations. For example, asking banks to match rates from a lender in another state that offers no realistic banking features (due to location) is pretty pointless and negotiations can often hit a brick wall. However, if location or in-branch features are not deemed important to the borrower, then happily compare the two lenders together.
Bigger the lender the bigger the discount
Smaller banks and lenders are known as ‘intermediaries’ or the ‘middle man’. As a consequence, some will not have the ability to lower their interests rates regardless of what other lenders offer, it’s company policy. Smaller lenders typically have greater costs resulting in borrowers having less bargaining power. As the subheading reads, the bigger the lender, the bigger the discount (usually).
Offer the ultimatum
Borrowers should know by now that just because they have been with their bank for decades, doesn’t mean they are entitled to extra services, special discounts or anything else of this sort. Winning new customers for banks is a difficult process and very costly, most would much rather waiver a few fees than to lose a customer forever. Knowing this key piece of information, borrowers should take advantage and threaten to leave to another lender if they cannot match or offer a better deal.
What we don’t suggest is to carelessly throw the idea of leaving unless being genuinely serious, as banks may sometimes call the bluff. Borrowers who are happy with their current lender because they provide great support, features and a fantastic service should recognise these services cost a bit more money and other low-cost lenders may fall short on.
Note: Unbeknown to some, earnings for a lot of people in the mortgage industry are directly correlated to the number of new mortgages they can setup. Whether seeking advice from mortgage brokers or other lenders be upfront and honest. Tell them you will shop around and even try and squeeze your current lender to get a better deal. It’s not the nicest thing to tell someone you’re going to leave your bank and go somewhere else hoping to secure a better deal, as they may think they will be getting a new client.
Don’t act like a bull in a china shop and understand that all lenders have a set of guidelines they must work within. Certain variables such as fees can be waivered but they may have next to no power for reducing interest rates. Borrowers should work with lenders to see what they can offer rather than demand for things outside of their hands. For example, if a lender can only can only offer a discount of 0.60% (because it’s capped) ask them to waiver the annual package fees for 2-3 year instead.
The truth about switching lenders
Many borrowers don’t hide the fact they hate their bank but they still never leave, why? Because they think it’s a huge hassle and usually not worth the time or stress associated with moving. The idea of getting new debit cards, setting up new payment schedules and filling out new forms with their employer sounds like drudgery (and they would be right). However, refinancing can sometimes save borrowers as much as $1,000