How To Negotiate A Better Home Loan Rate

Top of your list of considerations when taking out a home loan is likely the interest rate charged. Interest rates determine how much your monthly repayments will be as well as the total amount you’ll repay over the term of the loan. Rarely is a lender’s first offer their best offer. Knowing how to negotiate your home loan interest rate can help you get the best possible offer for your circumstances.

How to negotiate your rate as a first home buyer

There are plenty of lenders out there with a range of offers vying for your business. Many offer low-interest-rate honeymoon periods for new buyers, usually a fixed interest rate for a period of up to five years.

Understanding which offers are worth your time and how to negotiate them is where a mortgage broker can come in handy. Mortgage brokers deal with lots of types of lenders and should have plenty of experience finding loans for people similar to you, regardless of your situation.

Once you’ve established your eligibility for a loan, a mortgage broker can negotiate with their stable of lenders for the best available rate. They can often get your existing bank or financial institution to match an interest rate being advertised by a competitor.

A word of caution

Be wary of the terms and conditions that often accompany lower interest rates to ensure that you are still coming out ahead. For example, you may be hit with much larger annual fees with a loan that has a lower rate. That loan may also lack features such as redraw and offset facilities.

You also need to be extra wary of low-interest-rate loans such as fixed-rate loans. These types of loans offer an enticingly low rate for the first few years where the interest rate is fixed. But they will later revert to a much higher variable interest rate once the fixed part of the mortgage ends.

You can also opt for a split home loan that consists of a fixed and variable interest rate component, but it’s always advisable to talk to a home loan expert before going down that path.

Remember, when it comes to negotiating a better home loan deal, even as a first home buyer, there’s no harm in asking for what you want. If your prospective lender is rigid with the interest rate they are willing to offer, you can always continue shopping for a better deal. Just make sure you’re still looking at the mortgage and all accompanying fees and charges holistically.

How to negotiate your rate as a homeowner

As an existing homeowner, you may have the option to renegotiate or refinance your mortgage with either your current lender or a new one.

Many existing mortgage holders don’t necessarily keep an eagle eye on their interest rate. So, they wonder after a period of years — or even a decade or more — if the rate is still competitive.

If your goal is to get a better interest rate, your first port of call should be your current lender. If they agree to your rate request, you can save yourself all the accompanying rigmarole of switching loans and changing lenders. You’ll still need to fill out some paperwork, and it may require taking out a new mortgage and closing out the old one, but it’s still far less painful than having to deal with two lenders.

For more leverage during your rate negotiation, it can help show your current lender that there is another lender out there offering a better rate and ask them to match it. If you have a record over several years of paying off your mortgage on time without any complications, your current lender may be willing to comply in order to keep your business.

Remember, you are the one with the power in these negotiations, especially if you let them know that you are more than willing to jump ship if need be.

Other considerations

If you can’t get the rate you want from your current lender, refinancing is an option, but there are a few things to weigh up first. While the interest rate may be the primary consideration, it’s not the only one.

Your term

The other major factor that will determine whether you should refinance is the term — the length of the mortgage — and how much that will equate to in your monthly or fortnightly repayments.

If, for example, you are paying off a 25-year mortgage and you revert to a 30-year mortgage, you may end up paying more overall in the long run, despite having acquired a lower interest rate on the loan. So, it’s typically recommended that you refinance with the same term as your current mortgage or even shorter if possible.

Your comparison rate

You will also need to factor in fees and charges and features such as redraw and offset accounts that may exist in your existing mortgage. Once the fees and charges are added together, you will arrive at a figure known as the comparison rate, which reflects the true cost of the mortgage.

Your comparison rate should not differ greatly from your interest rate but it does provide a more holistic number that takes all the aforementioned fees and charges into account. Additionally, when you look at the comparison rate make sure you’re comparing apples with apples — meaning that you’re comparing a variable rate with another variable rate over the same mortgage term.

Yes. Interest rates listed on a lender’s website or even in a formal loan offer are just a starting point. You are free to request a different rate or to have your mortgage broker negotiate with a potential lender to achieve a lower rate.

If you are unfamiliar with the process or simply don’t feel like a confident negotiator, it may be best to enlist the help of a professional. Mortgage brokers can speak with lenders on your behalf, and may have relationships they can leverage to get you better terms.