The GFC and ongoing global financial turmoil caused by the present European sovereign debt crisis means continued uncertainty in money markets and the likelihood of Bank funding costs edging up again. For the Big 4 Australian Banks this in turn means ongoing pressure to pass on costs to customers via interest rate rises. However, right now there is intense competition between the Big Four and many of the smaller lenders, with some unprecedented discounts and switching offers available if you know how to access them. So how do you do this?
Firstly, as a customer, you need to realise the banks want your mortgage business. Home lending is much less risky for Banks than say business lending, and that's why the big Banks are competing fiercely for new mortgage customers.
Secondly, following changes introduced by the Gillard government it is now easier and often cheaper for customers to switch their mortgage compared to previous processes and costs.
So if it's now easier to switch and you can save significant amounts by finding a better deal, then you should be more active in managing your mortgage and shopping around. After all, your mortgage is one of the largest financial commitments you will ever make, so you need to regularly work it to make sure you are always getting the best deal possible.
Key steps to getting a better deal:
Here are some more details on each step:
1. Understand your current mortgage terms
2. Think about what you want or need from your Bank and then write a list of your priorities.
3. Research and shop around
There are typically 3 ways you can do this:
4. Get multiple Bank offers in writing
Like any bargaining process you need to get written quotes. Banks call these "conditional offers". Make sure you get quotes from several lenders, not just one. If you are refinancing, it often pays to tell your existing lender you are looking to leave and ask for their best offer. This can mean a better deal for you but save the fuss of transferring banks.
5. Compare the offers to your priority list
Be careful here. Not all offers are the same, even if the interest rates appear to be identical. Loans are finance contracts and all contracts have conditions. Go back to your priority list and check each Bank offer ticks all or most of your priorities. Compare this to your current lender and rank the offers. Now you have a shortlist.
6. Ask for even further discounts
Go back to the Banks on your shortlist and tell them you have offers from their competitors and tell them "this is what you need to beat if you want my business". Also ask, "do you have any special offers at the moment for switching". In the current competitive market many Banks have offers where they will pay you cash to switch to them. For example NAB currently offers $1,000 per loan until 23 December 2011, so if you have your loan split into 3 accounts then they will pay $3,000. Citibank is also offering $1,000 per customer....and if you use a Mortgage Referrer to help you like Refunds Direct, they will pay you a further cash amount (usually $1,000 or more). Don't be afraid to haggle with the Banks. They do it every day with many customers. But if you don't ask you won't get.
7. Select then switch or stay.
Make your decision and enjoy the benefits.
Remember to review your mortgage terms every few years and compare it to what is currently available on the market. Whether interest rates are going up or down you need to actively manage your mortgage to always get the best deal that fits your personal priorities. The Banks won't call you and offer you a better deal, you will need to use your power as an informed customer to stay on top. So put a note in your calendar and keep your money to yourself rather than in some random shareholder’s pocket!
This page was written in collaboration with Robert Graham, Chairman of Refunds Direct