A decade of falling or steady interest rates had borrowers nice and comfortable, but the last 10 months have woken everyone up to the need to pay attention to their loans and make sure they’re on the best deals.
Lenders have happily passed on each of the RBA’s rate rises, meaning everyone is paying a lot more interest than this time last year. And if you haven’t refinanced during this period, you could almost certainly be on a better deal.
Just like raising the rent incrementally each year on your investment properties, you can increase your cashflow by scoring a better interest rate and more flexible features on your finance. The best way to do this is by regularly refinancing. Testing the market every year or so will keep you in touch with the best deals available to you, plus help boost your borrowing power.
Don’t pay the lazy tax
Banks make money from charging you interest. Their business models rely on attracting new customers and retaining old ones. If you’ve been with one bank for a long time, that bank is not going to suddenly offer you the very best deal they have. No, they save those deals for the refinancers they’re trying to lure over from their competitors. Not only that, but they’ll often quietly and happily roll you into products that may not suit you, leaving it up to you to keep an eye on them.
So, always assume that there are better deals out there. Shop around online or talk to your mortgage broker or financial strategist. A better deal could save you hundreds, or even thousands, a year..
And you don’t necessarily have to switch. If you show your current lender that you can get a better deal elsewhere and are serious about leaving them, that’s where the retention part of their business model comes in and they will often come to the party with a better rate.
Harness the banks’ competition
Gone are the days of the major banks being the only options for borrowers. The lending market has been disrupted by a host of digital only lenders and smaller tiered banks that offer points of difference like lower rates and flexible features, as they have smaller overhead costs. They also offer fast loan application turnaround times and appealing user experiences. And they are all fighting for the business of a more engaged borrower base than ever before.
So you wield a bit of bargaining power if you are financially sound and present as an appealing customer.
If your bank still won’t budge when you demand a better rate, use that power. There are three magic words especially that can help you: Mortgage Discharge Form.
Requesting a mortgage discharge form shows you have done your research and are deadly serious about leaving. That may unlock that secret, final deal they were hiding under the table. This is because banks are competitive too.
Don’t fall off the cliff
Right now, most Australian states are experiencing record refinance numbers.
Some people may have been shocked into action by their extra repayment pain so far, while others are shopping around in the lead-up to the much talked about “fixed rate cliff”, which refers to the period over the coming months where a great number of fixed-rate loans will roll over onto a much higher variable rate.
If you locked in an interest rate beginning with a 2 over the last few years, the odds are that you will be facing that loan becoming 5% plus before the end of the financial year. There has been a lot of time to prepare for this, but it will still prove painful for plenty. All the more reason to be ready to refinance.
Compounding effects
Compound interest means any money you save gets boosted. And if you happen to be an investor with a multiple property portfolio, savings are compounded even further.
Imagine you had 10 properties. And in addition to raising the rent by $10 a week, per property, per year, you also saved $1000 a year on each property by refinancing or getting a better rate from your existing banks. That’s an extra $15,000 a year without having to do much.
