How can I negotiate with my lender to get a better rate?

Negotiate a more competitive rate so that you can save on home loan interest and pay off your loan sooner

There’s nothing more frustrating than realising you’re overpaying on home loan interest.

If you're able to find a better home loan deal, you could reduce your interest rate, lower your mortgage repayments and pay off your home loan sooner. This can not only save you money but also minimise stress associated with your home loan.

In this article, we’ll explain how you can negotiate a better interest rate and what to do if your lender refuses to lower your interest rate.

Can I negotiate my home loan interest rate?

Yes, you can negotiate your home loan interest rate. Just like when it comes to negotiating your salary, if you don’t ask for something better, you likely won’t get it.

Most lenders aren’t going to just spontaneously offer you a better rate – you’re going to have to ask for it.

Of course, asking for a lower rate doesn’t guarantee you’ll get one. For example, if you have a history of being inconsistent with your mortgage repayments, lenders may be less willing to reward you with a lower interest rate.

Need help negotiating your interest rate?

An FND Broker can negotiate on your behalf to help save you money.

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Can I lower my interest rate without refinancing?

It may be possible to secure a lower interest rate without refinancing if you’re able to negotiate your rate with your current lender.

Changing your home loan product or switching lenders will require a refinance.

Am I paying too much on my home loan?

You may be wondering if your interest rate and home loan as a whole are still competitive.

One way you can find if you have a high interest rate is by having a look at what rates and deals are currently available on the market.

If there has been a recent cash rate drop, lenders may be offering lower rates to attract new customers.

Equally, if your financial situation has changed – for example, you’ve gotten a pay rise, or your lifestyle has changed – it could be worth seeing if there’s a home loan better suited to current circumstances.

There may be new avenues available to you that can reduce the interest you pay over the life of your loan.

For example, you might benefit from an offset account to bring down your interest.

Or, a redraw facility could give you the confidence you need to start making extra repayments to pay your home loan faster.

If it’s been more than 2 years since your refinanced, it could be worth speaking to an FND Broker to have a look at all your options.

Want to refinance to access your equity?

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How do I ask my bank to lower my interest rate?

Asking your lender to reduce your home loan’s interest rate can be as simple as giving them a call.

If you don’t feel confident with negotiations, an FND Broker can help and reach out to your lender on your behalf.

Here are 5 tips to help prepare you for an interest rate negotiation with your current lender:

1.Be a responsible borrower

Before you even think about asking if you can get an interest rate reduction, it’s smart to make sure you are the model borrower.

Having a history of late repayments, for example, will likely reduce your chances of getting a lower rate.

If you weren’t the perfect borrower in the past, it’s a good idea to take the time to work on making regular, on-time repayments so that you can justify requesting a lower interest rate.

Other things that can put you in an ideal position to haggle include:

• Having a Loan to Value Ratio (LVR) of 80% or less

• Having stable and full-time employment

• Making principal and interest repayments, rather than interest only repayments

• Having a good credit history

• Being an owner-occupier.

Factors that can reduce your negotiation power may include:

• A poor credit score

• Missed loan or credit card repayments

• Having a high LVR (over 80%)

• Being a riskier borrower (e.g. if you’re self-employed).

2. Check out your current lender’s interest rates

Before you request a lower rate, it’s smart to research and know what rates your existing lender is offering new customers.

If your current interest rate is lower than the rate new customers get, you’re probably not going to have much luck lowering yours even further.

But chances are, if you haven’t refinanced in a while and have been with your lender for some time, you may not have the most competitive rate.

This is particularly likely if you were previously on a fixed rate home loan that reverted to your lender’s standard variable rate at the end of your fixed term. These standard variable interest rates are often higher than average variable rates.

Banks are unlikely to offer loyal customers lower interest rates just out of the blue, so you’re going to have to make the first move.

Coming in with knowledge of your lender’s interest rates will make you feel more confident when negotiating and less likely to get ripped off.

3. Compare your lender’s rates with competitor interest rates

In addition to finding out your current lender’s interest rates, it’s not a bad idea to do some competitor research on better loan rates from other lenders before you chat to your lender.

This gives you a better idea of what sort of interest rate you should have and how your current rate compares to the rest of the market.

When researching rates from other lenders, make sure you consider the following:

• What kind of fees these lenders are charging on their home loans

• That you are looking at the same type of home loan you currently have (e.g. if you have a variable rate investment loan, make sure you are comparing other variable rate investment loans)

• Whether these competitor loans include the same/similar features (e.g. offset accounts) that could influence the rate charged.

Basically, to make an effective comparison with your home loan, you need to look at very similar competitor loans.

You might also stumble across a home loan with a lower rate, but on closer inspection it comes with higher fees. Always calculate whether these fees make the home loan more expensive than a slightly higher interest rate.

Comparison rates may be able to give you a more accurate picture of what a home loan will cost.

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4. Ask for the rate that new customers get

We mentioned earlier that it’s important to find out what rates your lender is offering new customers. It’s very possible that these rates will be lower than your current interest rate.

If you have been the ideal borrower, with at least 20% equity in your home, you are in a decent position to ask for a reduced rate.

There are more lenders and banks than ever before and many lenders understand the importance of retaining customers and rewarding loyalty. So, you may find that your lender is willing to negotiate and reduce your rate if you are in a healthy financial position.

5. Take advantage of your customer loyalty

Your loyalty as a customer could be one of your greatest negotiation tools. If you’ve been with your lender for a long time and have a positive history with them, you may be able to use this to your advantage.

Come into the negotiation prepared and with the facts ready. You can tell them how many years you’ve been with them and prove your reliability as a borrower by highlighting your repayment history.

Starting the interest rate negotiation

At this stage, you should feel more prepared and confident to pick up the phone and call your lender (or visit one of their branches).

Here are some tips for the negotiation itself:

Be firm, polite and get straight to the point by saying that you would like a home loan interest rate reduction. This is when you can start justifying your request by:

• Explaining why you’re a responsible borrower

• Comparing what you’re paying as a loyal customer to what new customers pay

• Mentioning the lower rates competitors are offering (it’s better to bring this up later if they don’t buckle when you mention new customer rates).

What if my lender refuses to lower my interest rate?

If at the end of the negotiation they haven’t budged, it may be time to ask for a mortgage discharge form. This could be the final push they need to lower your rate.

By indicating that you are willing to switch lenders, they are forced to consider whether they want to lose you as a customer. In a saturated market, many lenders will be willing to trim down your interest rate to keep you.

By being prepared to switch lenders, you open up more opportunities for finding lower interest rates and loans that simply suit you better.

Don’t be afraid of refinancing your home loan either – this could be the opportunity to give it the facelift it deserves and find a lender more worthy of your time.

Make your refinance easy with an FND Broker

Help from an FND Broker is free – simply let us know what we can do for you.

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What if I’m not comfortable negotiating my interest rate?

If you’re not a confident negotiator, it’s a good idea to get an expert to negotiate on your behalf.

Book in an appointment with your local FND Broker so that you can chat through your situation. If they think you’re in a good position to negotiate your interest rate, they can call up your lender on your behalf.

An FND Broker can also help you to refinance, apply for a brand new home loan, or simply talk you through your options.