Rates are red hot

Bruce Brammall, The West Australian, 14 September, 2020

The dictionary defines “aroused” as meaning “stir into action or strong response”, or “stimulate”.

When it comes to mortgage interest rates starting with a “1”, take your pick. Or pick both. I won’t judge anyone with a mortgage for being the latter.

It’s rightfully got a lot of people hot and bothered. Interest rates are currently dead sexy, whether you’re buying or looking to refinance.

The interest rate turn-on appears as we find ourselves slipping into the scariest recession our country has faced in nearly 100 years. Well, actually, these rates have arrived in anticipation of it.

Multiple lenders are offering fixed interest mortgage rates below 2 per cent. You can, potentially, lock in these rates for up to three years. Most lenders, however, are in the low-2s, which is still likely to be half to one per cent cheaper than your current variable rate.

But they are a bit like the good sort you see across the bar. Just being in the same room doesn’t mean you’ll be able to take them home.

Interest rates have never been this appealing. When you’re buying a new property (home or investment), you are necessarily in the market. You need financing to close the purchase. And lenders are automatically going to be offering you the best rate they can offer.

But what if you’ve been in mortgage land for a while? Home is comfortable. Interest rates have come down since you purchased, so life has less of a financial squeeze. Do interest rates really matter that much?

Are you serious? Of course they do!

Would you like to slip another $40 a week into your wallet? And be mortgage free nearly two years earlier?

That’s the cost of your current bank taking advantage of you, if you’ve got a $500,000 mortgage and you’re paying an extra 0.5 per cent in interest.

If your variable rate is more than about 3.25 per cent, your bank is laughing at you. If it starts with a four, the bank’s shareholders are too.

Refinancing your home loan might seem like a hassle. But it doesn’t have to be.

Your first option is call your bank and threaten to leave. You don’t really have anything to lose. All banks have “retention” teams and their success is measured by how many clients they keep.

Cutting interest rates to keep you is what they do. And you might be surprised at how effective that simple phone call can be. Do a little research online to find out what sort of rates you could get, call the bank and say that you can see you could get X per cent somewhere else and ask them why you should stay shacked up with them.

If they don’t play ball, ratchet it up a bit. But you don’t have to do the work yourself – and you’ll probably be worse off if you do.

Mortgage brokers know which banks are doing what deals at a given time. And, apart from asking you to pull together some documents for them, they will do your bidding on your behalf.

Sometimes it might be just to do some “pricing”. That is, if the threat to leave comes from a broker, the bank definitely knows the borrower is serious about leaving. Sometimes, they might walk you to another bank.

Understand a few things, however.

Just because you can see a sexy rate online doesn’t mean that you can get it.

The hottest rates are usually saved for the borrowers the lender sees as the sexiest risks. A bit like lining up outside the pub, while watching the pretty people get let straight in.

Coronavirus has seen banks up the ante when it comes to checking into customer behaviour. Banks are asking for account statements and checking like they never have before.

The self-employed are having to show more information, anyone who has been on JobKeeper will face extra scrutiny and if you’ve accessed $10,000 from your super, you’ve raised a red flag right there.

Should you fix? Arguably, there’s never been a better time. Virtually every lender has cheaper fixed rates for two or three years. But there are risks – talk to a broker before proceeding.

With the sun shining, have a roll in the hay with your mortgage.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.