Turkey Talk In A Buyers' Market
Sydney Morning Herald
Wednesday July 13, 2005
The strategy
To negotiate a better rate on my home loan.Can I do that? Sales of new mortgages were down 9 per cent in June and the overall slowing in the property market has made some lenders more amenable to talking turkey. According to recent figures from the Reserve Bank, the majority of home borrowers are getting a discount on the standard variable rate and recent moves by lenders such as the Commonwealth Bank to offer discounts to larger borrowers have only added to competition. A non-bank lender, Wizard Home Loans, has even offered a 10 cents-a-litre discount on petrol purchases for a year for borrowers who sign up for its Smart Choice Loan before September 9, which is as good an indication as any that this is becoming a borrowers' market.So what should I do? Talk to your lender about whether you're getting the best deal you can on your home loan. Nicholas Gruen, the managing director of the discount mortgage broker Peach Home Loans, says while you may not need to refinance to get a better deal, it wouldn't hurt to see a broker so your lender knows you have other options. That will put it under more pressure to give you a better deal to keep your business. Realistically, says Gruen, your chances of getting a discount on your home loan rate will be higher if you have a larger loan. While the Commonwealth is offering a discount on loans of more than $250,000, that's on the low side and you'll often need a bigger loan before you can get a discount. Gruen says he wouldn't fancy your chances with most lenders if your loan is less than $250,000 and while you'd have reason to be more confident with a $500,000 loan, it's the borrowers with loans of $750,000 or more who have real negotiating power.Will all lenders give a discount? No. Oddly enough, Gruen says it is often the non-bank lenders who are more rigid in sticking to their scheduled rates. This is because their lending practices are often set out in trust deeds when they raise money and they have less flexibility than banks that raise much of their money through low-interest deposits. Some lenders are also more determined to maintain their margins, whereas others will suffer a margin reduction in order to keep or win customers.What forms do the discounts take? It varies between lenders. Gruen says one of the most popular discounts is through the use of banking packages. These packages were originally targeted at selected professionals or people with high incomes, but they are now widely available and generally the only qualification you need is a minimum loan size. For an annual fee of about $300 (Gruen says they range from $199 to $395), you get a discount of 0.3 to 0.8 per cent off the normal home loan rate.Gruen says banks may also be prepared to tailor packages for valued customers. While they often don't want to negotiate on the price of the standard package, he says, you may be able to get a better deal as a one-off. Some lenders will also just give a straight discount for larger loans without the need for a package.Are there other ways I can cut my interest costs? If you're prepared to refinance - and wear the costs of doing so - chances are you'll find a lender with a better deal. If you're concerned about possible interest rate rises, Gruen says it's still not a bad time to fix. While the pressure has gone off interest rates, he says you can lock in for three years at the current basic variable rate and for five years at less than the standard variable rate. He says many of these fixed rate loans are now more flexible as well and offer features such as flexible repayment options, and even redraws and offset accounts.
© 2005 Sydney Morning Herald