Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts

Play off banks to get a better interest rate deal

Tuesday, January 7, 2020
play banks against each other

How to get a really good interest rate from banks

A few years ago one of the great banking wars happened. Banks were aggressively trying to pick up new customers at great rates.

In the wasteland of slashed interest rates on mortgages, I came out the victor!

I had a vastly lower than market rate and $1000 bucks free cash in my account.

All I had to do was move banks.

Banks make billions of bucks all year, every year of the backs of hard-working moms and dads everywhere.

Over the lifetime of a mortgage, you and I will each pay thousands and thousands of dollars of interest.

In most cases, well over double what we paid for the house. Triple even!

And it's no secret if you want to pay less interestest off the life of that mortgage you need to pay it off quicker.

But how?

The most obvious thing to do is pay more money each week or month to the bank.

Simple eh?

Pay more money to the bank.

Simple as.

Who am I kidding? 

I've got two kids and two cats that eats like horses and a carrot loving rabbit named Hazel to feed and most of us know how hard it is to save, let alone give more money to the bank.

No, the best way to save money on the mortgage is to change banks.

And the truth is, you often don't have to change banks.

It's a slightly ballsy move, but you need to play your current bank off against other banks who want your interest payments.

Here's how moving banks to get a better interest rate works

You can tell your current bank that you intended to go to the competition. In a world where consumers are actually quite mobile (and perhaps not as loyal to corporations and companies as boomers once were) - consumers can take their 'debt money' out the door very quickly and often at little cost.

In my experience, I didn't even need to meet a bank manager in person. I spoke to them on the phone with a pencil and paper in hand. Maybe I sent the odd email.

So, here's the deal.

Ring or check the interest rates on your bank's competitor web sites. Find the one that is closest to your current rate and preferrable one below.

Give them a call and ask what they can do for you.

Because when they see you coming, they see money coming in the door for the next twenty years and will want a piece of that action.

Especially if you have some capital in your family home! Banks love lending to people who have equity. It makes their risk equation go down.

In my case, that number was 15 percent.

Say to them, you are unhappy with the rate offered by your current bank and you are looking for a better deal and can they better it?

Chances are they will and they will often throw in some sweeteners such as paying legal for you or offering cash to pay such fees.

Win-win for you.

So, at that point, you can choose to move over - which is easy enough to do if your mortgage is on floating interest. You'll likely have to do your general banking with the new bank, but that's the price of changing banks eh?

But, if you actually like your bank (they may have excellent customer service or sensible fees for example) then here's the part where you play them off.

Take the quoted rate of the competitor.

Tell them you want better else you are taking your huge ass mortgage with you. Here's what will happen:

At worst they will say no, we can't (or won't) match it.

They could match it which means you've just got yourself a better mortgage rate.

Or they could beat it. Even if it a quarter of a percent, you've probably saved yourself a few twenty dollar notes coming out of your paycheck each month.

In the modern banking realm, the confirmation can be done by email with your bank.

Watch out for break fees

If your mortgage is fixed then it's likely there will be what's called a 'break fee'. This is a fee the bank will charge you for 'breaking' the fixed rate. The charge is designed to allow the bank to recover their own financing cost of your loan.

So, depending on the charge, you need to consider if any short-term gain from interest savings will be offset or even outweighed by the break fee. Thus you need to carefully consider whether breaking your fixed-rate home loan the best financial result for you.

If the math works out, you're in a better place - not just fortnightly or monthly when that mortgage payment goes out but in the longer term - over 20 or 25 years, over the lifetime of your mortgage you will be paying less in the long term as that mountain of debt will be paid off quicker.

A mortgage paid off quickly will be one of the greatest monkeys you can ever take off your back. You may not have to keep working into your retirement years to pay it off. You'll be able to focus on the things that mean more to you than anything. And that's usually time with family and loved ones.
So, do not delay, start looking up those interest rates and move banks.
    What ever you do, do not get a pay day loan. They are evil tools of the finance industry. 
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