Get your­self the full rate cut

Central and North Burnett Times - - ESCAPE WITH US TODAY... - By Ni­cole Pedersen-mckin­non

About $10 a month and $120 a year doesn’t seem much to miss out on. It hurts a lit­tle more when you re­alise that’s $2811 over the life of a 25-year, $300,000 home loan, and a fur­ther $2400 if you’d stuck with the higher pay­ments you’re used to mak­ing.

But it’s down­right painful to con­sider that’s the re­sult of the big banks hoard­ing just 0.05 points of one in­ter­est rate cut. Over the past five years, they’ve withheld a third of all of­fi­cial cuts and added a bit ex­tra on to hikes for good mea­sure.

As de­bate once again rages about whether the claw­back is jus­ti­fied - the Re­serve Bank and Trea­surer Wayne Swan say no; banks and the fed­eral op­po­si­tion say yes - you can ac­tu­ally put a stop to this. There are five ways to se­cure the rate cut you de­serve.

1. Ap­ply for what they de­liver. First, while a rate cut will be au­to­mat­i­cally passed through to your loan - when, even­tu­ally, it kicks in (ING Di­rects’ full 25 ba­sis point cut, for ex­am­ple, doesn’t be­gin un­til Christ­mas Eve) - you need to ap­ply if you want your di­rect-debit re­pay­ment re­duced. Ad­ver­tise­ment This is to the banks’ credit as it means, all of a sud­den, you are over­pay­ing, which will save you sig­nif­i­cant in­ter­est in the long run. If you hold a $300,000 loan on the likely new big bank av­er­age vari­able rate, 6.42 per cent, that’s an ad­di­tional sav­ing of $16,613, and you’ll be debt free more than a year early.

But if in­stead you want the monthly cash in hand, you’ll have to put up your hand. 2. Ask for the full whack. OK, they may well laugh, but the sound will die in their throats if you re­veal you know about the gen­er­ous dis­counts they of­fer to se­lect cus­tomers.

The fact is big-bank head­line rates are no more than a start­ing point. You have bar­gain­ing power if you have a good credit his­tory and/ or are a long-stand­ing cus­tomer, and your bor­row­ings amount to more than, say, $250,000. Au­tho­rised dis­counts could be as high as a full per­cent­age point, which puts big-bank rates much closer to the most com­pet­i­tive in the mar­ket.

Those lenders that ap­pear at the top of in­ter­est-rate league ta­bles, of­ten non-banks, will have far less wrig­gle room.

3. Threaten to leave. Be pre­pared to lend weight to your re­quest by mak­ing a gen­uine threat to leave.

Banks know that the ban on exit fees on loans taken out since July 1, 2011, and the re­quire­ment that those on older loans are fair and re­flect only the rev­enue loss to the bank, give you mort­gage mo­bil­ity like never be­fore. And your lender knows it.

What’s more, many ri­val in­sti­tu­tions will hap­pily waive any set-up fees to get your busi­ness across.

But you may not even have to bother. This could well be the bar­gain­ing chip that secures you a much bet­ter rate ex­actly where you are, with not a jot of ex­tra ef­fort.

4. Ac­tu­ally switch. If your lender doesn’t ac­qui­esce, no mat­ter - you should gar­ner an even big­ger dis­count by ditch­ing and switch­ing.

Re­mem­ber, what­ever in­di­vid­ual lenders do with their rates each time, the gap be­tween the big banks’ av­er­age vari­able rate and the best rates on the mar­ket has stayed at about 1 per­cent­age point for years now - that’s not one but four rate cuts.

(Just be aware there are no as­sur­ances the cheap­est lenders will main­tain that mar­gin, and fund­ing dif­fi­cul­ties may see them pass on less. Make sure the ini­tial pric­ing is worth it.)

At cur­rent rates, im­prov­ing your deal by this much on the big-bank av­er­age rep­re­sents a sav­ing of al­most $52,000 on our $300,000 loan.

That’s about an an­nual wage. Do you think that jus­ti­fies the bit of pa­per­work in­volved?

5. Save even more money. If you’re hold­ing money in a sav­ings ac­count of some kind when you still have a mort­gage, stop. You’ll strug­gle to get up to 5 per cent on de­posit to­day - and from that you’ll lose in­ter­est. Put the money against your mort­gage, how­ever, and you’ll ef­fec­tively earn 5.5 per cent or more, tax-free.

So the dif­fer­ence is much more than two rate cuts; there is sim­ply no de­ci­sion.

The smartest thing to do is not to put your money ac­tu­ally in­side the mort­gage but to house it along­side it in a linked off­set ac­count. The in­ter­est sav­ing should be iden­ti­cal but you will re­tain full, free ac­cess. You can also get mul­ti­ple off­sets that al­low you to keep your sav­ings, hol­i­day, car, etc., sep­a­rate.

Don’t be at the mercy of the banks self-serv­ing in­ter­est rate repric­ing, serve your­self an in­ter­est rate re­prieve.

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