FINE tuning your home loan can make you thousands of dollars extra a year better off. The Reserve Bank of Australia has kept interest rates at 2.5 per cent since August last year but many lenders have failed to pass on the full benefit.
So if you’re keen to make the most of this historically low rate you may need to take matters into your own hands.
Here are moneysaver’s simple steps to giving yourself a better mortgage rate.
1. Do your homework.
Financial services firm Canstar’s research manager Mitchell Watson says the first thing borrowers should do is get a clear understanding of what is and isn’t a good deal so you are in a better position to negotiate.
Knowing what is the best rate in the market can help when you approach the lender and demand a better deal.
Canstar’s database shows the lowest standard variable rate on the market for a $300,000 30-year loan is 4.48 per cent.
Consumers should also look at the fees attached which can make a big difference over the life of the loan.
Watson suggests finding out whether a home loan package which includes other products like credit cards may result in you getting better bang for buck.
2. Understand your loan
Reviewing your mortgage every few years is a good idea. If you have a fixed-rate loan do it when the loan term matures.
If you had a high loan-to-value ratio – the size of the loan compared to the value of the property – it’s worth giving yourself a home loan health check once this drops below 80 per cent.
Mortgage Choice spokeswoman Jessica Darnbrough says you’ll have more freedom to move as you won’t be slapped with lenders’ mortgage insurance.
‘Lenders’ mortgage insurance is not transferable, so if the loan you are refinancing into has an LVR of 80 per cent or more, you could be required to pay LMI again,” she says.
‘It may pay for borrowers to bide their time, wait until they can get a loan with an LVR of 80 per cent or less and then refinance.”
3. Phone your bank
Once you’re armed with your home loan ammunition it’s important you’re assertive when contacting lenders, whether it’s your current provider or a different financial institution.
Ask for a better rate or tell the bank you’ll walk.
Westpac’s head of home ownership, Melanie Evans, says ‘shop around and find a lower interest rate so your repayments reduce as much of the principal of your mortgage as possible.’
4. Contact a mortgage broker
But some borrowers will find researching home loan deals far too hard and this is where they’ll often engage a mortgage broker.
They often have a comprehensive understanding of the market and can find the best deals to suit a customer’s needs.
Watson says they can sometimes provide customers with deals that aren’t publicly advertised by lenders.
Teacher Najla Eid, 29, who owns three properties recently used a mortgage broker to snare her cheaper rates across her two investment properties.
‘I realised my interest rates weren’t that good anymore so I went to my mortgage broker who helped me get more competitive deals,” she says.
‘I’ve saved myself about $60 a week on my two investment property loans by getting a better rate.’
5. Changing your existing mortgage
ING Direct’s head of product Michael Christofides says adopting measures such as making fortnightly repayments can also help reduce your interest bill.
‘Have your salary paid into your mortgage as well and you are making sure every dollar of your income is going against what you owe on your home loan,” he says.
Another popular method is to use your credit card to pay for purchases and pay it off at the end of the month to keep the balance in your offset account as high as possible, for as long as possible, to reduce your interest charges.