Your home loan is the biggest expense you will probably ever have in your life, and even a small interest rate reduction could save you thousands over the life of your loan. If you feel like you’re making barely any progress with your repayments, simply asking your lender if they can do you a better deal could mean the difference between saving big or feeling like Sisyphus, endlessly rolling your mortgage uphill - minus the Greek abs.
If it’s been a while since you reviewed your home loan interest rate, chances are you’re overpaying. This is what’s known as ‘mortgage loyalty tax’ where lenders offer better rates to new customers while keeping existing customers on a higher rate. To avoid this, it’s important to regularly review your mortgage rate and if you’re not happy with it, negotiate for a better deal with your lender.
Negotiating with your bank can be intimidating for a lot of people, so here’s a step-by-step guide on how to ask your lender for an interest rate reduction on your home loan.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.08% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% | Rate drops by 0.25% on 4th March |
| Promoted | Disclosure | |||||||||
5.74% p.a. | 5.65% p.a. | $2,915 | Principal & Interest | Variable | $0 | $0 | 80% | Apply in minutes |
| Promoted | Disclosure | |||||||||
6.09% p.a. | 6.11% p.a. | $3,027 | Principal & Interest | Variable | $0 | $250 | 60% |
| Promoted | Disclosure |
How to ask your lender for a rate reduction
Do your research and compare other lenders' rates
Before you even get on the phone, you should take a look at what rates other lenders are offering and what rate your current lender is offering new customers. By doing this, you can see how your current loan stacks up and use this information to haggle for a better interest rate.
When comparing interest rates, don’t forget to look at the comparison rate (the true cost of the loan once fees have been taken into account). Looks can be deceiving - sometimes what looks like a really attractive rate can have a very high comparison rate. It’s a bit like matching with a 10/10 on Tinder, only to discover they hate dogs.
Financial comparison websites - like this one - make it easy to see what rates other lenders are offering.
Using an online mortgage switching calculator can be a great way to visualise how much money you could save by getting a lower interest rate, and give you extra motivation to demand a better rate from your lender.
It's also important to stay on top of what's happening in the market.
That way, if your lender - or another lender - announces a big change to their home loan rates or offers new incentives, you can check whether it will benefit you or not.
And if you’ve fixed part of your home loan interest rate, don’t forget that you might still be able to renegotiate the rate on the variable portion.
Leverage your Loan-to-Value Ratio
If your loan-to-value ratio (LVR) has improved (meaning you now owe less money on your home loan compared to its value) you could qualify for a more competitive interest rate. A lower LVR makes you a lower risk borrower, which strengthens your position when negotiating with lenders.
Pick the right time to negotiate
Sometimes, timing is everything and that can also be true when it comes to negotiating your mortgage rate. Lenders may be more likely to play ball when interest rates are stable or decreasing (they want to stay competitive), a major competitor has lowered their rates (you can use this as leverage), your fixed rate period is about to end (they want to keep you as a customer), or if you have a strong repayment history or improved LVR (banks favour reliable borrowers).
Ring up your bank
Now it’s time to psych yourself up to make that phone call! Here’s a script you might like to try:
You: Hi, my name is [Your Name] and I’m calling today to review my loan and see if I can get a better deal. I’ve noticed that other lenders are offering more competitive rates, and I’d like to discuss my options.
Lender Representative: I’d be happy to assist. I see you currently have a [loan type, e.g., variable/fixed] home loan with an interest rate of [current rate]%.
You: Yes, that’s correct. I’ve been a loyal customer with [Lender’s Name] for [X] years, and I’d love to stay with you, but I’ve seen other lenders offering rates as low as [competitor rate]%. Given my strong repayment history and loyalty as a customer, I was hoping you could offer me a better deal to stay with [Lender’s Name]. Are there any rate discounts or better offers available?
Lender Representative: Let me check what we can do. I’ll put you on hold for a moment. Thank you for holding. We can offer you a reduced rate of [new rate]%.
♥ If the new rate is good:
You: That sounds great! Could you confirm if there are any fees involved in making this change? Also, when will the new rate take effect?
× If the offer isn’t competitive:
You: I appreciate that, but I was really expecting something closer to [Target Rate]%, especially considering the offers I’ve received. Is there any flexibility to match or come closer to that?
Lender Representative: I understand. Let me check again and see what we can do.
[Wait for final response. If they can’t offer a better rate, ask if they can waive fees, provide an offset account, or offer other perks.]
If you accept their final offer:
You: That sounds much better! Can you confirm this new rate in writing and let me know if there are any additional fees or changes to my loan terms? Also, how soon can this new rate take effect?
If you decide to switch lenders:
You: I understand, but in that case, I’ll have to seriously consider refinancing with another lender. Would it be possible to escalate this to a retention specialist or someone with more authority to negotiate?
The key to nailing the phone call is to sound confident and the best way to do that is to have done your research before you pick up the phone. Tell your lender you’ve been shopping around and that you can see there are better deals on the market (and give examples).
One trick that can work is telling your lender that you're planning to speak with a mortgage broker if they won't lower your rate. Lenders know that brokers have access to a wide range of competitive deals, so just mentioning it can sometimes be enough to get them to sharpen their offer for you.
And if you’ve only recently taken out a home loan, Ms Pedersen-McKinnon says you can still ask for a rate reduction.
“After as few as six months you should feel at liberty to ask for a mortgage discount - sooner if you see that there is a competitor offering a better deal or if your institution fails to pass on a rate cut.”
If you're on a variable interest rate, it's worth asking for a rate reduction every six to twelve months.
Staying informed about market trends is important. If your lender or others announce major changes to their rates or offer new incentives, you’ll want to check if you can take advantage of them.
And if part of your loan is fixed, don’t forget that you may still be able to renegotiate the rate on the variable portion.
Also, keeping up with your mortgage repayments is crucial. Lenders are far less likely to offer a discount if you’re behind or on a repayment pause.
Call their bluff
If your lender isn’t willing to budge at all, telling them you want to sign a mortgage discharge form will show them you’re serious about getting a better rate.
Signing a mortgage discharge form means the lender is removed from your home loan and happens when you either pay off the loan in full or when you refinance.
Just remember, if you tell your lender you’re prepared to sign a mortgage discharge form, you had better be prepared to act on it too.
Be prepared to walk
Your lender may be willing to lower your interest rate but if it’s not competitive with other rates on the market and you’re still not happy, consider making the switch to another lender.
But before you switch, make sure you consider all the pros and cons of refinancing like break costs if you’re on a fixed rate, and any other fees that come with refinancing.
If you’re sure refinancing is the right move for you, here’s how to refinance your home loan.
Final thoughts: Ask, negotiate, and be persistent
Remember: if you don’t ask, you don’t get. Banks count on customer inertia, so being proactive about reviewing your mortgage rate can save you thousands over the life of the loan.
- Regularly review your rate to avoid the “mortgage loyalty tax”
- Do your research and compare competitor rates
- Have a strong script ready to go when calling your lender
- Use your LVR and market trends to your advantage
- Consider mortgage brokers for better deals
- Be ready to refinance if your lender won’t play ball
Persistence pays off, so don’t be afraid to push for a better interest rate.
Photo by Karolina Grabowska from Pexels
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