Asking for a rate cut: how to negotiate a better home loan rate

They say that if you don’t ask, you won’t receive. The same can be said for securing a lower rate home loan.

Interest rates on mortgages have been rising at an alarming frequency for millions of homeowners in Australia. However, there are tangible steps you can take to get back control of your home loan debt and reduce the pressure on your household budget.

If your household budget is starting to feel the financial pinch from rising mortgage repayments, it may be worth considering negotiating for a lower rate.

It may feel intimidating for some homeowners, but you’d be shocked at just how easy it is to talk your way to a lower home loan rate - if you have the right ammunition and script to follow.

It may be as easy as picking up the phone and asking.

Compare refinance home loan

The amount you can save by negotiating a lower home loan rate depends on the size of your loan, the reduction in interest rate, and the loan term. Even a small reduction in your rate can result in significant savings over time. By lowering your interest rate, you can reduce the amount of interest you pay, freeing up more of your budget for other financial goals.

Here’s a breakdown of potential savings on a $500,000 loan with a starting interest rate of 6.36% p.a. and a 25-year term.

Savings based on interest rate reductions

Source: RateCity data

Step 1: Know your strengths as a customer

Home loan lenders typically reserve their most competitive interest rates to ‘ideal’ borrowers. That’s not to say you still can’t negotiate a lower rate if you don’t meet these criteria, but it’s worth knowing how many you tick. These factors may help you to boost your argument for a lower interest rate when the time comes.

Before you begin the negotiations, you may want to take some time to assess your financial situation, and see how many of the following you match:

Being an ideal borrower may include:

• Having a good to excellent credit score
• Living in the property (versus being an investor)
• Reducing your loan-to-value ratio (LVR) to 80% or below (important if you applied with a deposit under 20%)
• Being employed in a full-time role for more than 12 months
• Not missing a mortgage repayment
• Having paid off your other debts (car loans, outstanding credit cards)
• Making principal and interest repayments

When you applied for your home loan, you likely did not meet all of these criteria - especially if you were a younger Australian. After a few years of repaying your mortgage, you may now be in a more competitive financial position, meaning you may be more likely to nab a lower interest rate.

Keep in mind that if you already met this criteria when you applied, you may already be paying your lender’s lower home loan rate offering. In that case, you may want to instead consider refinancing as opposed to negotiating.

Step 2: Research your lender’s new customer rates

Your next step will be to hop online to your lender's website or use RateCity’s search tool, to find what rates your lender is currently offering new customers.

• Unsure of your current interest rate? It should appear on your home loan statement, through your online banking platform or banking app.

Generally speaking, a home loan lender will reserve its most competitive rates for new customers to entice them to sign up. If you’ve been with your lender for a few years, you may be paying a higher rate than those offered to new customers.

This may be especially relevant for borrowers previously on fixed rate terms that have reverted to a lender’s standard variable rate. The standard variable rate can be a lot higher on average.

You can then use this knowledge as part of your negotiation when you speak to your lender and request a rate reduction. After all, why should you pay a higher rate as a loyal customer?

Variable Rate Home Loan LVR < 80%

• Owner Occupied
• Variable
• 20% min deposit

Special

Receive an extra 0.01% p.a. discount every year, up to a maximum discount of 0.30% p.a.

Built by CBA, this home loan deal allows borrowers who refinance benefit from an ongoing loyalty discount

Interest rate p.a.

5.99%

Comparison rate* p.a.

5.90%

More details

FeaturedAustralian Credit Licence: 234945 Unloan terms and conditions

Step 3: Research competitor interest rates

Sometimes your lender can be resistant to lowering your mortgage rate to meet new customer offerings, so it is also worth researching lower rate home loan options from competitors.

Hop on to RateCity’s comparison table and enter your current loan details in the filter, such as your loan amount, property value and whether you’re paying principal and interest or interest only. You’ll then be shown a list of home loans available on the RateCity database that may be compatible with your mortgage.

Take a screenshot of these lower rate options, or write down this list, and use it as backup for your negotiation.

After all, if your bank won’t reduce your rate because new customers are paying less, then mentioning their competitors is a great way to get their attention. Plus, if they still refuse to change your rate at the end of the day, you now have a list of potential options to consider refinancing to.

Step 4: Begin negotiations

You have all your ammunition, including:

• Why you are an ideal customer
• How much more you’re paying as a loyal customer versus new customers
• How much less competitors are charging

Now is the time to pick up the phone and call your lender. Whichever team you are directed to, be firm (but polite) that you would like to request a home loan rate decrease.

Then, begin listing the above information. If they won’t budge after you mention new customer rates, bring in your big list of lower rates offered by competitors.

If your provider still won’t budge, it’s time to mention the three magic words: mortgage discharge form. Let your lender know that you are serious about getting a lower interest rate and that you are prepared to switch lenders if they won’t play ball.

Introduction

“Hello, my name is [Your Name] and I’d like to speak with a customer service representative about my home loan interest rate. I have been a home loan customer for X years and would like to request an interest rate reduction.”

Highlight new customer rates

“I’ve seen that you are currently offering new customers an interest rate of X.XX%, and this is XX% more than I am paying. I do not think it is fair thatI am paying so much more as a loyal customer.”

Highlight your strength as a borrower

“I have proven myself to be an ideal customer because I have never missed a mortgage repayment and have reduced my LVR to XX% over the years [insert your reasons]”.

If they still won’t budge…

Escalate (if needed)

“I’d like to request a mortgage discharge form then to begin the process of refinancing. If you won’t take care of a loyal customer like me, why should I keep my home loan with you?”

If your lender doesn’t agree to a lower rate, be prepared to switch lenders but make sure you understand the refinancing costs. When considering a lower rate with another lender, review all fees and charges. Sometimes a lower interest rate may not include features like extra repayments or an offset account, which can help reduce interest costs. Make sure that the new loan aligns with your needs.

If your negotiation succeeds, request confirmation of the new rate in writing and check your next statement to ensure the changes are applied.

You will need to be certain that you are comfortable refinancing if it does come down to it. Hopefully your lender will budge on your rate before you need to pull the trigger, but if you have to switch lenders, you should now have a list of potential lower rate options to consider.

That being said, be aware that switching home loans can be a costly exercise, so make sure you find out all the fees and charges involved to exit from your existing loan as well as setting up the new one.

Also ensure that if you refinance, you don’t end up extending your loan term as this can result in paying tens of thousands of dollars more in interest.

Use our Refinance Calculator now to see how much more you may save by refinancing to one of the competitive home loans from your research.