Step 1: Know your strengths as a customer
Home loan lenders typically reserve their most competitive interest rates to ‘ideal’ borrowers. That’s not to say you still can’t negotiate a lower rate if you don’t meet these criteria, but it’s worth knowing how many you tick. These factors may help you to boost your argument for a lower interest rate when the time comes.
Before you begin the negotiations, you may want to take some time to assess your financial situation, and see how many of the following you match:
Being an ideal borrower may include:
- Having a good to excellent credit score
- Living in the property (versus being an investor)
- Reducing your loan-to-value ratio (LVR) to 80% or below (important if you applied with a deposit under 20%)
- Being employed in a full-time role for more than 12 months
- Not missing a mortgage repayment
- Having paid off your other debts (car loans, outstanding credit cards)
- Making principal and interest repayments
When you applied for your home loan, you likely did not meet all of these criteria - especially if you were a younger Australian. After a few years of repaying your mortgage, you may now be in a more competitive financial position, meaning you may be more likely to nab a lower interest rate.
Keep in mind that if you already met this criteria when you applied, you may already be paying your lender’s lower home loan rate offering. In that case, you may want to instead consider refinancing as opposed to negotiating.
Step 2: Research your lender’s new customer rates
Your next step will be to hop online to your lender's website or use RateCity’s search tool, to find what rates your lender is currently offering new customers.
- Unsure of your current interest rate? It should appear on your home loan statement, through your online banking platform or banking app.
Generally speaking, a home loan lender will reserve its most competitive rates for new customers to entice them to sign up. If you’ve been with your lender for a few years, you may be paying a higher rate than those offered to new customers.
This may be especially relevant for borrowers previously on fixed rate terms that have reverted to a lender’s standard variable rate. The standard variable rate can be a lot higher on average.
You can then use this knowledge as part of your negotiation when you speak to your lender and request a rate reduction. After all, why should you pay a higher rate as a loyal customer?
Variable Rate Home Loan LVR < 80%
- Owner Occupied
- Variable
- 20% min deposit
Special
Receive an extra 0.01% p.a. discount every year, up to a maximum discount of 0.30% p.a.
Built by CBA, this home loan deal allows borrowers who refinance benefit from an ongoing loyalty discount
Interest rate p.a.
5.99%
Comparison rate* p.a.
5.90%
More details
FeaturedAustralian Credit Licence: 234945 Unloan terms and conditions
Step 3: Research competitor interest rates
Sometimes your lender can be resistant to lowering your mortgage rate to meet new customer offerings, so it is also worth researching lower rate home loan options from competitors.
Hop on to RateCity’s comparison table and enter your current loan details in the filter, such as your loan amount, property value and whether you’re paying principal and interest or interest only. You’ll then be shown a list of home loans available on the RateCity database that may be compatible with your mortgage.
Take a screenshot of these lower rate options, or write down this list, and use it as backup for your negotiation.
After all, if your bank won’t reduce your rate because new customers are paying less, then mentioning their competitors is a great way to get their attention. Plus, if they still refuse to change your rate at the end of the day, you now have a list of potential options to consider refinancing to.
Step 4: Begin negotiations
You have all your ammunition, including:
- Why you are an ideal customer
- How much more you’re paying as a loyal customer versus new customers
- How much less competitors are charging
Now is the time to pick up the phone and call your lender. Whichever team you are directed to, be firm (but polite) that you would like to request a home loan rate decrease.
Then, begin listing the above information. If they won’t budge after you mention new customer rates, bring in your big list of lower rates offered by competitors.
If your provider still won’t budge, it’s time to mention the three magic words: mortgage discharge form. Let your lender know that you are serious about getting a lower interest rate and that you are prepared to switch lenders if they won’t play ball.
