With home loan interest rates as low as 2.99 per cent, borrowers have plenty of scope to negotiate a better rate or refinance. A lot of borrowers don’t know they can haggle with their lender.
The consumer watchdog, the Australian Competition and Consumer Commission, says borrowers should review their residential mortgage products on a regular basis.
It says there are three ways to get a better deal: ask the lender for a better interest rates and lower fees; switch to a cheaper product with the same lender; or switch lenders.
RateCity research director Sally Tindall says borrowers with the right profile are being rewarded with lower rates. “If you’re an owner-occupier paying down your debt with a bit of equity up your sleeve, you’re in the box seat when it comes to rates.”
According to RateCity, the lowest rate on offer is 3.19 per cent, which Reduce Home Loans is offering for borrowers with LVRs up to 60 per cent.
Other lenders with variable rates under 3.3 per cent include Mortgage House, Homestar Finance and Loans.com.au
A couple of lenders – Greater Bank and UBank – are offering one-year fixed rates at 2.99 per cent.
According to Canstar, standard variable rates are as high as 5.9 per cent, which means there is a wide range between the highest and lowest rates. This gives borrowers plenty of room to negotiate or refinance with a cheaper provider.
Last November, the ACCC issued a report on residential mortgage pricing. It says the home market is marked by “opaque discretionary pricing”, which has the effect of stifling price competition and inflating borrowers’ costs.
It also impacts borrowers’ willingness to shop around. The “unnecessarily high cost of price discovery” is likely a key reason why 70 per cent of recent borrowers surveyed said they had obtained just one quote before taking out their residential mortgage.
“We consider that the big four banks profit from the suppression of borrower incentives to shop around and lack strong incentives to make prices more transparent,” the report says.
The ACCC says a borrower’s willingness to negotiate with their lender has been an important factor in the pricing of their residential mortgage.
“Not all borrowers may be aware they can negotiate with their lender on price, either before or after they have established their residential mortgage,” it says.
About 11 per cent of borrowers surveyed obtained a reduced interest rate or reduced fees as a result of asking their bank for a better deal or accepting a bank-initiated offer.
The headline interest rates advertised by banks are used to attract residential mortgage borrowers are a poor indicator of the interest rate borrowers actually pay. The vast majority pay less than the headline rate.
While some discounts are advertised others are discretionary, based on criteria that vary and are not disclosed to the borrower.
This adds considerably to the time and effort prospective borrowers must expend to obtain accurate interest rate offers from multiple lenders and to discover the best price.
Existing borrowers who do not shop around for a better deal on a regular basis are the main losers from opaque discretionary pricing. Banks appear to be offering significant discounts to new customers, with the result that new borrowers are paying lower interest rates on average than existing borrowers.
The ACCC compared the big for banks plus Macquarie with a group of seven other banks. It found that the “other banks” had a wider range of headline variable interest rates for standard principal and interest owner-occupier mortgages.