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How can I negotiate a better interest rate with my lender?

John Tran
July 26, 2022
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Like most homeowners, you probably don't enjoy the thought of paying more than necessary for your mortgage. After all, one of the largest payments you'll have throughout your lifetime is probably your mortgage.

The good news is that, despite the ongoing rate hikes over the past few months, there are still some opportunities for you to lower your interest rate and pay off your home loan sooner which could save you money and reduce the stress associated with your home loan.

Is it possible to negotiate my home loan interest rate?

It is indeed possible to negotiate your home loan interest rate. However, it's important to keep in mind that not all lenders are willing to budge on this front. 

Some may be more open to negotiation than others, so it's definitely worth doing your research and finding out which lenders are more likely to offer you a competitive rate. 

Additionally, it's important to remember that you'll need to have a strong case for why you deserve a lower interest rate. Lenders will usually only consider lowering your interest rate if you can demonstrate that you're a low-risk borrower. This means having a good credit score, a steady income, and a strong track record of making timely loan repayments. If you can show the lender that you're a good candidate for a lower interest rate, you may be able to successfully negotiate a better deal.

How to ask my lender to lower my interest rate?

You can call up your lender and ask for a lower rate. Just like that! If you don’t feel confident, reach out to your broker and they will act on your behalf to approach your lender

Here are 5 tips you can do when preparing to negotiate with your lender:

1. Be a responsible borrower

To improve your chances of getting a lower interest rate, it's important to make sure you're a model borrower. A history of late repayments, for example, will likely hurt your chances. So if you're looking to save on interest, it's important to keep up with your payments and stay in good standing with your lender.

Here are some of the factors that may place you in a favorable negotiating position include:

  • A Loan-to-Value ratio (LVR) of 80% or less
  • Having stable employment
  • Repaying your principal and interest on time
  • Have a good credit history
  • Being an owner-occupier

On the other hand, here are the factors that can affect your negotiation:

  • Have a bad or poor credit history
  • Not on time when paying loans or credit
  • Having a high LVR of over 80%
  • Being a riskier borrower (e.g. self-employed)

2. Research your current lender interest rates

It's crucial to explore your options before starting the mortgage negotiation process. Knowing the interest rates and market conditions at the moment is necessary. It also entails being informed of any costs or consequences that could be attached to refinancing your loan. You'll be in a much stronger position to negotiate a good deal if you complete your research.

Making sure you comprehend your financial status clearly is a further crucial piece of advice. Knowing your monthly budget as well as the amount of equity you have in your property is necessary for this. Possessing this knowledge will enable you to decide on the loan terms that you can actually afford.

It's time to start haggling with your lender once you've done your research and have a firm grasp of your budget. Always keep in mind that getting the best mortgage deal is the main objective. To achieve this, you might need to be prepared to leave the negotiation room if you don't think you're receiving a fair offer. Use this strategy with confidence; it can mean the difference between receiving a fantastic deal and paying too much for your mortgage.

3. Shop around for the best deal

If you're looking to lower your monthly mortgage repayments, it's important to do some research on the competition. By shopping around and comparing rates, you can get a better idea of what's available and use that knowledge to negotiate a lower rate with your current lender.

Of course, this isn't always easy – but it's worth it if you can save yourself hundreds or even thousands of dollars over the life of your loan. So don't be afraid to shop around and compare rates before you commit to anything. It could end up being the best decision you ever make.

4. Ask about the rate that new clients get

Asking for the interest rate that new clients receive can help you get a better deal on your mortgage. Mortgage lenders are always trying to attract new business, so they offer lower rates to lure in customers. 

The lender might not be as eager to provide you a competitive deal if you're currently a customer. However, the lender may be more likely to offer you a lower rate if you threaten to leave for a better deal elsewhere.

5. Use your customer’s loyalty

You might be able to use this to your advantage when negotiating a higher mortgage rate if you're a loyal customer of your bank or mortgage provider. If you've been with your lender for a long time and have a positive history with them, they may be more likely to give you a better interest rate or other terms. This can be a great way to save money on your mortgage, so it's worth considering if you're up for negotiation.

What if my lender won't reduce my interest rate?

If your lender won't reduce your interest rate, you may have to look for another lender who is willing to give you a better deal. Interest rates can vary significantly from one lender to another, so it's definitely worth shopping around.

You may also want to consider refinancing your loan with a new lender. This could help you get a lower interest rate and save money on your monthly payments. Refinancing involves taking out a new loan to pay off your existing loan. This can be a good option if you can find a low-interest rate and favorable terms.

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