Most mortgage holders aren’t confident enough to press their lender for a better rate, even though a short phone call could save them thousands, according to new research from comparison platform OurTop10.
The survey of 1,018 Australians, conducted by PureProfile, found 64% of mortgage holders don’t feel confident they could secure a lower interest rate by threatening to refinance. Only 29% believed they could, and 7% said they had already done so.
The potential savings are significant. OurTop10 calculated that a borrower with a $700,000 loan over 25 years who negotiated a 0.25 percentage point cut, from 6.70% to 6.45%, would reduce monthly repayments by about $110. That’s $1,316 a year, or almost $33,000 in interest over the life of the loan if rates otherwise stayed the same.
The research was released after the Reserve Bank lifted the cash rate to 4.85% on 3 November, its fifth increase this year.
Confidence varied widely by age. Some 37% of Millennials believed they could talk their lender into a lower rate, compared with 33% of Gen X and just 20% of Baby Boomers. Seven in 10 Baby Boomers said they wouldn’t feel confident trying.
OurTop10 head of research Mansour Soltani (pictured) said younger borrowers are more likely to have seen the tactic work online.
“Younger borrowers are far more exposed to money tips on social media,” he said.
Soltani said refinancing isn’t always worthwhile once discharge fees, government charges and the time involved are taken into account. As a general guide, he said, switching often doesn’t pay unless the rate difference is at least 0.25 percentage points, or the borrower is planning to fix.
Instead, he suggested borrowers use the possibility of leaving as leverage. That means going in with a like-for-like competitor rate and, if the lender won’t move, asking for a discharge form. The form doesn’t need to be lodged, but the request usually puts the borrower through to the retention team.
“Even a 0.10 percentage point reduction is worth it when all it costs you is 10 minutes of your time,” Soltani said.
Soltani said the major banks are currently working hard to keep existing customers. He said lending volumes have slowed since the Federal Budget changes, giving lenders a strong reason to hold on to the borrowers they already have.
Official figures confirm the slowdown. ABS data released this week shows the value of new home loans fell 15.5% in the September quarter, the largest quarterly fall since the series began in 2002.
In some cases, he said, banks will match a competitor’s rate or offer a cashback. Borrowers with loans of more than $750,000, or several loans with the same bank, may have more room to negotiate, Soltani said.
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