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Borrowers pushing for better mortgage deals can save $2000 a year

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In today’s financial climate, where banks are eager to retain their clients amidst falling profit margins, home loan borrowers have discovered a powerful strategy to save on their mortgages without the need to refinance. By simply requesting better interest rates from their current lenders, many are seeing significant annual savings.

The Power of Negotiation

Recent analysis reveals that lenders are typically willing to reduce mortgage rates by about 0.46 percentage points for customers who actively seek a rate review, either directly or through their mortgage brokers. For those holding a mortgage of $450,000, this adjustment translates into a yearly saving of approximately $2,070. The figure increases to $2,760 for those with loans closer to the national average of $600,000.

Repricing: A Growing Trend

As financial regulations tighten, many homeowners find it increasingly challenging to switch banks due to stringent loan serviceability tests set by the Australian Prudential Regulation Authority (APRA). These tests often require new lenders to assess potential borrowers against a high mortgage rate scenario of about 10%, including a 3% buffer, which many fail to meet.

This situation has made repricing discussions with current lenders an attractive alternative. Adam Grocke, founder of a start-up that aids mortgage brokers in negotiating home loans, emphasizes that repricing is a robust way to save money. “As customers find it harder to refinance given tight servicing, repricing is a robust way to save money without having to refinance,” he notes. His firm’s system, managing over $70 billion in mortgages, has seen substantial discounts achieved through negotiations.

The Role of Mortgage Brokers

Mortgage brokers have been instrumental in this process. According to a recent report by the Mortgage & Financing Association of Australia (MFAA), 88% of brokers have successfully negotiated better rates with a borrower’s current lender. This highlights the crucial role brokers play in assisting clients to navigate the complexities of loan management and financial negotiations.

Banks Respond to Competitive Pressures

This trend towards negotiation and repricing comes at a time when major banks, including National Australia Bank, ANZ Bank, and Westpac, face continued pressure on their lending margins. With forecasts predicting modest growth in loan volumes, these institutions are increasingly focusing on retaining existing customers through competitive discounting, even as the broader credit market shows signs of tightening.

Call for Improved Processes

Despite the potential savings, the process of switching lenders remains cumbersome, often taking significantly longer than the recommended ten days. This has led to renewed calls for banks to streamline the mortgage discharge process, which continues to deter many from switching due to the lengthy and complex nature of the procedure.

Conclusion

For many homeowners, negotiating a better rate on their existing mortgage has proven a feasible and lucrative alternative to the arduous process of refinancing. With the right approach and possibly the aid of a skilled mortgage broker, borrowers can leverage their loyalty to secure more favourable terms, thereby enhancing their financial flexibility and saving substantial amounts annually. This strategy not only benefits the individual homeowner but also reflects a broader trend in financial consumer empowerment, prompting lenders to offer more competitive and responsive service in a challenging economic environment.