How to give yourself a rate cut

How old is your home loan?

When you bake a cake to celebrate your home loan’s 4th birthday, as I’m sure you all do, then it is time for a full check-up to make sure that your rate is still on the money.

Refinancing is NOT plan A
You don’t always have to refinance. Sometimes you can make a call to your bank and ask them to drop your interest rate. Well to be precise you may need to threaten to refinance to make them sharpen their pencil.

In many cases banks bring out a new loan product which they offer to new clients, yet they forget to mention it to their existing customers. Often your mortgage broker can just switch you to the new cheaper loan with the same bank by filling in a quick form.

Good customers lose
How many products do you have with your bank? A cheque account? Credit card? Home loan? A few investment loans? Ok so quite a few.

In that case your bank knows that you are a sticky customer. You aren’t going to leave them even if they kick you in the face. That’s because many people can’t be bothered moving all of their accounts.

So in actual fact loyal customers often get less of a discount than customers that are more likely to leave!

Play hardball
If your bank will not reduce your interest rate, or offers you a laughable discount then leave them. Simple.

I’m a strong believer that if you have been a loyal customer and have made your repayments on time then you should be rewarded. Most companies treat their loyal customers this way but for some reason banks are different.

If they aren’t on the same page then call a mortgage broker and find a bank that appreciates your business.

What is a good rate?
It really depends on your loan amount and personal situation however interest rate discounts of 0.8% to 1.2% below the bank standard variable rate are quite common.

The difference between someone on a 0.7% discount and a 1.0% discount on a $500,000 loan is $92 a month. Not much right?

Actually it is a lot! If the person with a 1.0% discount makes the same repayments as the person with the 0.7% discount then they will save $72,940 over the term of the loan!

When to review your portfolio
You should review each loan at least every four years. Personally I like to review my customers’ loans annually.

However each time you buy a new property get your mortgage broker to do a quick check on all of your loans. Not just your interest rate, get them to check that you are using your loans effectively as well.