People refinance for many reasons. Often, it’s because they’re unhappy with their current lender. Or their current home loan isn’t meeting their needs. But what if that’s not the case? What if you’ve been with the same lender for the past 3, 5 or even 10 years, and they’re great to deal with. You can’t imagine changing lenders. You just wish your interest rate were a little bit more competitive…
If you’re one of the many homeowners who love their lender but not their interest rate, then don’t worry, there’s good news. By working with an experienced mortgage broker, you may be able to refinance for a great rate…without having to change lenders! Yes, many lenders, including big banks such as CBA and BankWest, will allow their existing home loan customers to refinance from the standard variable rate to obtain a better deal. Doing so could save you literally thousands of dollars every year.
What You Need to Know About Refinance a Home Loan with Your Current Lender
Just because you’ve decided you deserve a lower interest rate, that doesn’t mean your current lender is automatically going to agree with you.
So, before engaging a mortgage broker to ask for a rate reduction, here are a few things to keep in mind:
Do some basic research:
You may feel like your interest rate is too high, but it’s a good idea to back this up with a bit of basic research. Start by confirming your current interest rate and then start looking at how this compares with some of the other market offers available. At this stage, it’s a great idea to get in contact with a mortgage broker with refinancing experience. They can help you compare your current loan with a range of comparable mortgage products, to determine whether or not you could be getting a better deal.
Understand the fine print:
Many interest rates are advertised with attention-grabbing headlines but don’t forget to read the small print. You may not be eligible for some of these mortgage products. Others may come with a great “honeymoon rate”, but how do the ongoing fees and charges compare to similar products with a slightly higher introductory rate? Ask your broker for help in understanding all of the terms and conditions associated with the home loan products you’re comparing. They can help you to cut through the fine print and gain a clear understanding of exactly how a comparable product will stack up against your current home loan.
Honestly assess your current credit situation:
You’re unlikely to be accepted for a refinance deal if your current financial situation isn’t stable. If you’ve only just started your own business, you’ve recently changed jobs or if you’re behind on repayments then you’re less likely to be approved for a refinance home loan. Find out what your current credit score is (you’re entitled to a free credit report every 12 months) and ensure that your report doesn’t contain any errors. Your broker will be able to give you an honest assessment on whether you’re currently in a strong position to refinance.
Is Your Current Home Loan Meeting Your Needs?
You may be 100% happy with your current lender, but how do you feel about the structure of your mortgage? Lenders usually offer a range of mortgage products so that customers can choose the home loan structure that will best suit their financial needs. So, before you decide to refinance with the exact same home loan, think about:
Fixed vs. variable interest rate:
Do you want your new interest rate to be fixed? Or variable? Or some combination of the two? If you’re unsure which option would best suit your current needs, then talk through the various pros and cons with a mortgage broker.
Ability to make additional repayments:
Does your current home loan allow you to make additional repayments? If not, is this something you’d like to incorporate as a feature of your new home loan? Making additional repayments (even just a little bit extra each month) can significantly reduce the amount of interest you pay over the life of the home loan.
If you’re able to make additional repayments, do you want your new loan to include a redraw facility? This will enable you to reduce the total interest you’re paying, but you’ll still be able to draw on those funds should you need them in the future. Many homeowners find a redraw facility to be helpful when they’re planning to undertake a renovation.
An offset account works much like an everyday bank account, allowing you to make routine deposits and withdrawals. The difference with an offset account is that any funds sitting in the account will be “offset” against your mortgage total when your interest is calculated each month. For example, if your mortgage balance is $320,000, but you have $20,000 worth of savings sitting in your offset account, you’ll only be charged interest for $300,000. Some lenders even offer multiple offset accounts allowing you to manage your day-to-day banking but still having every dollar working for you and not the bank.
How to Negotiate with Your Current Lender for a Better Interest Rate
This may sound like a battle of the underdog vs the giant corporate banking machine, but don’t panic! It’s definitely not as scary as it sounds. The truth is, many of the big banks are very responsive when it comes to market competition. Without their customers, they won’t have a business.
Most lenders aren’t going to go out of their way to notify their existing customers that they can get a better deal elsewhere. But, if you’re a loyal customer with a solid repayment history, they don’t want to lose your business. Because of this, many of the big banks and major lenders are surprisingly agreeable when it comes to refinancing for a better rate. If they have a mortgage product with a lower interest rate available, then odds are high they’ll be more than happy to switch you over with minimal fuss.
Many homeowners are surprised to hear just how easy it can be to refinance with their current lender for a better interest rate. But the truth is, it generally costs more to attract a new customer (in advertising and promotional discounts) than it does to switch an existing customer over to a reduced interest rate.
The Importance of Using a Mortgage Broker
There is, of course, a catch. If you approach your lender directly and ask them for a better rate, you’re unlikely to get very far. The reality is most borrowers just can’t be bothered with the hassle of switching lenders on their own. So, your lender probably won’t view your enquiries about a better rate as a serious threat that they’re about to lose your business. They may offer a slight reduction in your interest rate in an effort to appease you, but that’s about all you can reasonably hope for.
However, once you get a mortgage broker involved, the situation becomes radically different. When a lender is contacted by a mortgage broker, the message is loud and clear: “You’re about to lose this customer.” That’s the signal to your lender that they need to start doing everything in their power to retain your business. This is why it’s so important to get an experienced refinance broker involved from the very beginning. Not only will your lender be more likely to take you seriously, but you’re also far more likely to achieve a better end result. This is because, in addition to having more negotiating power, brokers also have access to unadvertised “secret” deals that aren’t available directly to the public.
How to Refinance with Your Current Lender
Clearly, when it comes to refinancing your home loan with your existing lender, your best possible option is to talk to a mortgage broker. Let them know you want to refinance, but your preference is to stay with your current lender. That’s it! Your mortgage broker will take care of the rest.
They’ll do the research, assess your current financial situation and determine which home loan product would be most suitable for you and most beneficial for achieving your future financial goals. They’ll read the fine print and provide honest and unbiased advice on which home loan product they think would be in your best interests. They’ll then contact your existing lender and take care of the whole negotiation process. Simple, easy and totally stress-free!
What Are Some Good Reasons to Refinance with Your Current Lender?
There are a range of really good reasons why you should consider refinancing your home loan with your current lender. These include:
You could save a lot of money:
Interest rates in Australia are currently at record-breaking lows. The Reserve Bank of Australia has indicated they’re unlikely to increase the official cash rate for the next 3 years. If your current home loan is more than 2 years old, then there’s a high chance you’re paying more than you need to. For example, if you had a $400,000 loan with a 30 year term and an interest rate of 4.5%, your monthly principal and interest repayments would be $2,026.74. If you were to refinance to a 2.5% interest rate, you would save around $446 every month. That’s annual savings of over $5,350. And over the full life of the loan, you’ll save a staggering $160,652 in interest.
You could consolidate personal debt:
If you have a lot of personal debt, such as maxed out credit cards or multiple vehicle loans, then it could be worth consolidating this debt into your mortgage. This can make it easier to manage debt repayments and can help you to get on top of your finances faster. Consolidating your debt means you only have to make one monthly repayment with a low interest rate, instead of being charged 15% interest (or more!) and paying multiple creditors every month.
You could access the equity in your property:
If you’ve accrued equity in your current property then you may be able to refinance your home loan to access this equity. What is equity? It’s the difference between your home loan balance and the value of your property. For example, if you currently owe $275,000 on your mortgage, but your property is valued at $415,000, then you have equity of $140,000. Equity can be used to finance a renovation or as a deposit on an investment property.
You could get access to more suitable mortgage features:
If your financial situation has changed since you first obtained your mortgage, then you may find certain mortgage features would now be more useful. The ability to make additional repayments could enable you to pay off your mortgage faster. An offset account could manage your savings while also reducing the amount of interest you pay each month. And a redraw facility could help you achieve a future goal, such as a long-awaited renovation.
So, if you currently have a mortgage with BankWest, CBA, ING or any of the other major banks, and you’re 100% happy with the service you receive from your lender, then that’s great news. But that doesn’t mean you have to put up with paying a high interest rate. Contact our experienced refinance team today to find out more about how you can refinance for a great rate…without having to change lenders!