(03) 9020 2905Has there ever been a better time to have a mortgage? To owe a bank a big pile of money?
Official interest rates are as low as they’ve ever been. Variable rate mortgages are close to rock bottom. Banks are practically giving away fixed rate loans (at under 5 per cent), if that’s what floats your boat. And … property prices seem to be rising again.
This is, as Jack Nicholson said, as good as it gets. In the mortgage space, most borrowers are pretty chillaxed.
Damnit people! You have absolutely no idea that there’s a war going on!
Yes, you heard right. War.
The banks are again slugging it out on High St. And you have a duty to yourself to pillage and loot.
It’s a “Cold War” battle. No-one is dying. It’s not like that opening scene from Saving Private Ryan, where you can hear the bullets and mortars fizzing past. It’s all happening behind the banks’ velvet curtains.
Lenders have the “sale” sandwich boards out on the street. Actually, make that “LIQUIDATORS CLEARANCE!”
Competition is hotting up again – banks are sourcing money on the cheap and they can’t on-sell it fast enough.
Who is currently benefitting? Those who are buying new property, refinancing or who know how to make plausible threats to their lender.
Who else can benefit? Almost anyone prepared to demand a better deal from their bank, or to walk away.
When the GFC struck, banks went into lockdown. Money became more expensive to source. They restricted lending. They didn’t pass on full Reserve Bank rate cuts. And they added on a little extra for themselves when the RBA raised rates.
Something’s changed. Bigger discounts are back on the table.
The full rack rate is known as the “standard variable rate”. The current SVRs are 6.38 per cent for NAB, 6.4 per cent for ANZ and Commonwealth and 6.51 per cent for Westpac.
Few people pay those rates. Most will have a discount of between 0.5 per cent and 1 per cent from the SVR. That is, most people are paying between 5.9 per cent at the top end and 5.4 per cent at the bottom end.
SVRs haven’t moved since December 2012, which gives the impression that rates aren’t moving.
But they are moving, because the discounts are getting bigger.
In recent months, the banks have increased the discounts they’re prepared to offer. Why? Because their “cost of funding” has decreased. That is, they are getting money cheaper themselves.
Your discount is predominantly based on two things. The most important is how much you owe. The second is how ruthless you’re prepared to be (or whether you’re prepared to have a mortgage broker negotiate for you).
The more you owe a bank, the bigger the discount you can demand. If you owe $250,000 or less, you’re unlikely to get a huge discount. But it should be in range of 0.4 per cent to 0.7 per cent.
Between $250,000 and $500,000, your discount should be a little bigger. A bit more if your lending is between $500,000 and $1 million.
And if you owe more than $1 million, then you’re an extremely valuable client. If you’re paying more than about 5.5 per cent from a major bank, you’re paying too much.
The only people benefitting from it now are those who are asking for new money, those who are refinancing, or those who are prepared to put a gun to their bank’s head.
If you haven’t put your bank to the test in recent years, you need to do so.
A bank will never, EVER, come to you and offer to reduce your rate unless you ask the question. Or threaten to leave.
If that’s your situation, what do you need to do?
Find out what rate you’re paying and what discount you’re on. If it doesn’t seem right, you’ve got two choices. Try to negotiate with your bank or other banks yourself. Or engage a mortgage broker.
Banks will, happily, take you for granted. Unless the wheel starts getting squeaky, it won’t get oiled.
They know if they’re ripping you off. And they would rather sharpen their pencil than lose a good client.
They say there are no winners in a war. In this case, that’s rubbish. But you have to act. Will you?
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.