More than one million mortgage holders have never asked their bank for a lower rate, leaving lenders little reason to give ground.
Finder research found 37 per cent of borrowers, or 1.2 million people, had never tried to negotiate their mortgage rate and just 10 per cent had asked in the past three months.
The comparison site says refinancing the average Australian home loan of $734,878 from a 6.95 per cent variable rate to the current lowest market rate of 5.69 per cent would cut monthly repayments from $4865 to $4261, saving $7248 a year.
Sign up to The Nightly’s newsletters.
Get the first look at the digital newspaper, curated daily stories and breaking headlines delivered to your inbox.
By continuing you agree to our Terms and Privacy Policy.
Finder money and home loans expert Richard Whitten said too many borrowers treated their bank’s first offer as final.
“There’s a common misconception that the interest rate your bank gives you is the best rate you’re entitled to, but that’s not the case,” he said.
Mortgage broker Bianca Patterson said borrowers should ask for a better deal but keep a hard eye on the real cost of switching loans.
“The cheapest advertised interest rate is not always the cheapest loan once fees, offset account benefits, redraw access and future flexibility are taken into account,” Ms Patterson said.
The Perth-based Calculated Lending founder said rate reviews could work, especially for borrowers whose loans had been left alone for years, but lenders often knocked back requests.
“There are often more ‘no’ responses than ‘yes’,” Ms Patterson said.
One referred client, who was 13 years into the loan term, received a 0.69 percentage point discount within days after the firm reviewed the loan statement and contacted the lender.
Ms Patterson said earlier reviews may have saved more interest over time.
“Existing customers are not automatically moved on to better discounts as market conditions change, which is why periodic rate reviews are worthwhile,” she said.
Lenders weighed the profit margin on the loan, the customer’s equity, the broader banking relationship and the risk of the borrower leaving, she said.
“Sometimes the additional discount available is quite small, such as 0.05 per cent,” Ms Patterson said.
“Sometimes no further discount is available at all.”
Borrowers with stronger equity, bigger loan balances and clean repayment records usually had more bargaining power, Ms Patterson said.
But equity alone did not guarantee a cheaper rate. Some borrowers who won strong discounts during the COVID period may already have a better deal than their lender offers new customers today, she said.
Finder said even a 0.5 percentage point difference could save more than $58,000 on a $500,000 loan over 30 years, but Ms Patterson said borrowers should treat that figure with care.
“A 0.5 per cent discount is not something we commonly see lenders offer simply to retain an existing customer,” she said.
Ms Patterson said borrowers should allow about $700 to $1500 to move lenders, including discharge, registration, application and valuation fees.
“Refinancing involves a full new application, so a lower advertised rate only helps if the new loan is approved,” she said.
That test may be harder after recent rate rises, with some borrowers unable to qualify for the same debt under current lending rules.
The mortgage broker said introductory rates could also flatter the saving.
“A very attractive rate in the first year or so will not be as competitive once it reverts,” she said.
Borrowers may then have to refinance again, pay another round of costs, or sit on a higher rate.
She said borrowers should also be wary of resetting the loan to 30 years.
“This can make the monthly repayments look much lower and make the refinance appear to be saving the borrower more than it actually is,” she said.
A borrower five years into a mortgage could cut the monthly bill by refinancing back to 30 years but pay interest for longer.
Mr Whitten said borrowers should still challenge their lender.
“It can feel awkward asking for a better deal, but that five-minute conversation could save you thousands over the life of your loan,” he said.