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All eyes are on the RBA’s rate decision, but why wait? You can give yourself a rate cut at any time. Here’s how. Picture by Max Mason-Hubers
Australian homeowners are hoping the RBA pulls the trigger on a rate cut at its September meeting to provide some much needed relief.
Households are at crisis point, with two years’ worth of interest rate hikes seeing people skipping meals or not putting petrol in their car in order to make mortgage payments.
But if borrowers don’t want to wait for the central bank to save them some money, they can pick up the phone and give themselves a rate cut right away.
Finder’s latest Consumer Sentiment Tracker revealed 42 per cent of homeowners struggled to pay their mortgage in August. That’s the highest number on record since the comparison company began tracking this data in 2019.
Survey respondents revealed the drastic measures they were resorting to just to get by, with 10 per cent skipping meals or grocery purchases to meet repayments, 7 per cent not paying energy or credit card bills and 6 per cent not putting petrol in their car.
“Our record result shows households are spending far too much of their incomes servicing their mortgages,” Finder’s head of consumer research Graham Cooke said.
“Many are running out of money each month and have to choose which bills to pay.”
Aussies are having to stretch their budgets further than ever. Picture: Lyndon Mechielsen/The Australian
Mr Cooke said the first thing a struggling homeowner should do is make sure they are paying as little interest as possible on their mortgage.
“If your rate doesn’t start with a five or a low six, you’re paying too much,” he said. “Call your lender and see if you can negotiate a lower rate … look at what other providers are offering and if you find an even better deal, switch.”
Mortgage Choice broker David Thurmond said borrowers often mistakenly believe they are on a good interest rate.
“Once the loan is in place, they don’t regularly check what’s competitive,” he said, adding that banks use tactics to exploit a lack of customer engagement.
“They want to make things confusing. That’s why they have two different standard variable rates. They have the 8.5 per cent rate and then they have the discounted rate of 2 per cent, which gets you down to a competitive rate in the sixes.
“People coming off fixed rates recently would have gone on to a variable rate with a discount based on when they fixed, and the discounts weren’t as good three years ago. So you might come off a fixed rate of 2 per cent and go above 7 per cent, but still think you’re getting a discount.
“If people realised the difference 6 per cent makes compared to 7 per cent, I think they’d pay more attention. Even a 0.1 per cent discount on a million dollar loan saves you $1000 a year.”
Homeowners often mistakenly believe they are on a good interest rate.
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Mr Thurmond regularly contacts lenders to secure better deals for his clients.
“Every six months, we confirm the interest rate they’re on, and then shop that around with other lenders. Then we go back to the existing lender and say ‘hey, if you don’t sharpen your rate, we’ll take the client somewhere else’.
“Last week, we saved a client $1700 on annual interest charges just by renegotiating her rate.”
He said rising competition made banks more focused on retaining clients.
“We have 45 banks on our lender panel, with close to 1000 different loans between them,” he said. “Lenders are a lot more competitive since Covid. They want to retain existing clients, but they’re never going to call you up and say ‘hey, I can give you a better rate’.”
Going through with a refinance requires time spent gathering financial documents, and costs such as bank and loan fees. Mr Thurmond said it’s important to make sure the refinance will actually save more than a reduced rate with your current lender.
“If you don’t know, say to a broker ‘show me the maths that says moving is worth the cost’,” he said. “I provide clients a three and a five-year snapshot of the cost. ‘It’s going to cost you roughly $500 to move to this loan, which will save you 0.5 per cent each year for the next three years. That equates to $3500 in savings. So if you’re going to spend $500 to save $3500, that’s good maths.”
Lenders recently began to cut rates on fixed interest loans, which may tempt borrowers to lock in a cheaper rate.
Canstar’s data insights director Sally Tindall said fixing can provide certainty, but borrowers risk locking the door on further savings.
“The Canstar database shows the majority of lenders’ lowest rates are currently fixed rates, but in most cases, it’s not by much.” Ms Tindall said.
“Even just a couple of rate cuts could see many variable rates fall below fixed rates, potentially leaving those who locked in their rate on an uncompetitive deal.”
Ms Tindall said that if a borrower still prefers to fix, they should look for a competitive rate and pay close attention to the fees and features of the loan.
“If you need to break the contract before the term is up, lenders can charge you a break fee that can cost thousands of dollars,” she said.
“Most fixed rates are also a lot less flexible. They typically have caps on how much extra you can chip into your loan, and they usually don’t offer an offset account.”
Last year I saved a bundle by taking matters into my own hands.
I had a loan of $124,000 for an investment property, which had recently rolled off a five-year interest only payments deal and into a standard variable loan.
When I checked my interest, I was now paying 8.13 per cent! Meanwhile, my bank was offering new customers 5.07 per cent for investment loans.
Real estate writer Tim McIntyre pictured with his wife Simone du Toit and their sons Jack, 5, and Tommy, 3 saved his family $3000 due to one phone call to the bank. Picture: Max Mason-Hubers
I needed to call the bank for a better deal. Canstar’s Sally Tindall told me I should prepare for the call by knowing what rates the opposition were offering and being prepared to leave if my bank wouldn’t give me their new customer rate.
She also told me three magic words to keep up my sleeve … “mortgage discharge form”.
The phone call:
Me: I want to talk about the interest rate on my loan. It’s 8.13 per cent. That’s too high.
Bank: Yes, that is the rate on our standard variable product.
Me: OK, I rolled over from interest-only so should I be on a different variable product?
Bank: There is a better rate on our basic variable package. That is 7.23 per cent.
Me: OK, I see from your website you’re offering new customers 5.07 per cent on investment loans.
Bank: Yes that is only for loan balances higher than $150,000.
Me: OK, what’s the best rate you can offer me? If it’s 7.23 per cent, I will need to leave because I have two other lenders at 4.99 per cent that I am eligible to join.
Get a good rate with your bank first. Then you can kick back and relax. Picture by Max Mason-Hubers
Bank: We can give you the 7.23 per cent deal plus a discount of 1.95 per cent, so your new rate will be 5.18 per cent.
Me: That sounds better, but can you also please send me a mortgage discharge form, because my mind isn’t quite made up and I may decide to leave?
Bank: I am not authorised to send the mortgage discharge form, I will need to put you through to a different department.
When I got through to the retention department, a very friendly man talked about how much they hoped I’d stay with the bank and reminded me that refinancing costs a certain amount in fees, which I should calculate against my new rate before leaving.
That calculation showed me it would take more than a year to recoup the refinancing costs, at which point I’d be looking for another better deal anyway, so it suited me better to stay put.
Final result: 2.98 per cent rate reduction, which means a saving of $250 a month, $3000 a year and $60,000 over the 23 years of the loan (which is nearly half its current value).
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