01.Ask for a discount on your home loan
Banks are enjoying lower funding costs and should pass on those savings to their home loan customers, former Reserve Bank of Australia (RBA) governor and current ME Bank chairman Bernie Fraser told News Corp Australia yesterday.
The margin between standard mortgage rates and the cash rate set by the RBA has steadily crept up from 1.8% to 3.45% between early 2008 to December 2012, and the higher the margin, the more profit the banks make.
Banks justified the increased margin during the global financial crisis and its aftermath by citing the fact that the cost for their own borrowing had gone up, and bank interest rates on savings accounts and term deposits had also increased. But while wholesale funding costs and rates on deposits have now come down, the margins remain high.
CHOICE has been challenging Australia’s major banks to use their record profitability to pass on an out-of-cycle interest rate cut to consumers since 2013.
But while banks recently significantly cut the rates for fixed loans, the margin between standard rates and the cash rate hasn't changed. "Anyone with bank savings knows that the banks have had no hesitation about slashing the rates on deposits, now with wholesale funding costs easing, banks should pass on those savings to their customers on variable loans," says CHOICE CEO Alan Kirkland.
CHOICE top home loan tips
- Ask your lender to match the best deal you can find. A 2010 CHOICE banking survey revealed about 60% of people who asked for a better deal on their home loan got it.
- If your interest rate falls, leave your repayments unchanged and reduce your loan with no extra effort.
- Lenders may waive fees and charges for other accounts you have with them, such as the monthly account-keeping fee for your transaction account.
- If you have a redraw or a 100% offset account facility make extra repayments if you can. While economists predict that rates will remain unchanged until the end of the year, some predict rate increases for next year. So now is the time to create a buffer.
- If you're on monthly repayments move to fortnightly.
- Consider switching to a basic loan. Interest rates on basic mortgages are often lower than rates on standard loans and many now come with great features.
- If you need to budget and really can't afford much higher rates, consider a fixed rate loan. They are currently very competitive.