After three consecutive interest rate hikes, mortgage holders are feeling the squeeze. While asking a bank for a better rate is still a good first step, borrowers will likely need a more strategic approach to secure a reduced rate.
Find the 'Edge of Cliff' Rate
Angus Gilfillan, chief executive of broking group Finspo, advises borrowers to push their lender to reveal their “edge of cliff” retention price—the best rate they offer to keep a customer who is about to leave. To trigger this, first line up a more competitive rate from a rival lender, then submit a discharge form with your current bank. This prompts the retention team to call with their best offer.
Boost Your Equity Position
Before lodging a discharge form, consider getting a home valuation. If your property has increased in value, your equity has risen, making you a more attractive borrower. For example, moving from 20% to 30% equity can qualify you for a better rate.
Consider Cash Back Offers
Some lenders still offer cash back incentives for new customers, typically $2,000 to $4,000, according to Canstar data. Sally Tindall, Canstar’s data insights director, says these offers are worth considering if the new loan has low fees and a competitive interest rate. However, for larger debts, the interest rate is more important.
Many owner-occupiers currently pay over 6% on variable mortgages, even before the latest rate hike. Tindall notes that a competitive rate after the hike will still start with a five, but borrowers may need to switch to a lesser-known lender. Switching costs around $1,000, which should be factored into the decision.
If you need financial help, call the national debt helpline on 1800 007 007.
