A reminder popped up on my phone; it was that time of year again:

Time to ask for an interest rate reduction on my mortgages.

I got to work.

I do this every year, hence the reminders. Otherwise I’d forget. I’ve managed to get a rate reduction every time I’ve asked. Even when it’s small, it’s to be celebrated.

For example, in 2018 the bank offered a 0.25% drop on all rates. On my home alone, that was worth over $26,000 over the life of the loan.

It took 40 minutes in total:

• thinking about it then researching comparable rates online - 20 mins

• one phone call to a broker for benchmarking - 5 mins

• one email to the bank - 10 mins (mostly checking my spelling and grammar)

• one phone call from the bank - 2 mins

• a second phone call from the bank offering the drop - 3 mins.

There aren’t many places you can 'make' more than $26,000 in under an hour with your clothes on. Your mortgage is definitely one of them.

Every time I share this advice, I get a deluge of shares from people who’ve done the same, and a pile of questions about how to do it. This post is for the latter group. Particularly those who want to stay with their current lender. If this doesn't work with your current lender, you can look at switching - but that's a topic for another post.

You can copy the process and script in this post to get your own mortgage rate reduction.

I’ve included my personal scenario from 2018 as a worked example so you can see the process in action.

I’ve also created a short PDF download on what to do if you want to get your mortgage rate lowered, which you can grab here:

Step 1: Find your current rate

Do you know what rate you’re currently paying on your mortgage/s?

I’m surprised how often the answer is ‘no’.

That rate sets how much your monthly repayments are. In turn, that sets how much you’ll pay back on your property over the life of the loan. The lower the rate, the better for you.

But you won’t know if you can do better until you find out what you’re currently paying.

You may find your rate is competitive and there isn’t much rom to move. In that case, you can say: “What a pleasant surprise!” and carry on with your life.

You may find you rate is not competitive. In that case, read on...

How do I know what’s competitive?

Google is your friend. Look up comparison sites, head to the home pages of the major banks and see their advertised rates. You can also call or email a mortgage broker and ask that they can do.

Worked Example: My rates weren’t bad, but not great

In 2018 I had three loans, all with the same bank:

• $44k balance on 4.12 per cent (set as owner-occupier as a legacy - it was my home, once upon a time)

• $149k balance on 4.70 per cent (set as investment)

• $607k balance on 4.12 per cent (joint with husband, this one was our current home)

Two months earlier, the 2x owner-occupier loans started with a three. Thanks to an out-of-cycle rate increase (the Reserve Bank of Australia didn’t put the rates up, the bank did that of its own accord) they now started with a four.

A Google search revealed 3.59 per cent offers, and I could see some Big 4 banks with 3.8 – 3.9 per cent advertised.

I got in touch with a broker to see what they thought might be achievable to keep the homeloan with a Big 4 bank, with an offset account and no fees. Their opinion was 3.84 per cent was possible with the same lender. We could do some restructuring to get the investment down to something comparable if I was keen.

...which I wasn’t. Restructuring means paperwork. I was happy with my lender, so I opted to go it alone.

3.84 per cent became my target, with a matched drop on the investment loan.

Step 2: Choose your course of action

Having identified an opportunity to drop your rate, you’ve got two choices:

1. Do it yourself.

2. Get someone (usually a mortgage broker) to do it for you.

People often jump to the second option because the thought of asking for a discount is enough to make them squirm. I went with option 1 and it took less than 10 minutes, all of which were pleasant. So don’t immediately think you must get a broker on board.

If you’re on the fence, here’s some advantages of each option:

Advantages of using a broker

They’ve got volume on their side. Having lots of clients with one institution gives them power to push for a better deal than you might achieve alone.

They do this for a living. Their relationship with the bank is a professional one, not a personal one like you. If you find bargaining scares you, delegation may be preferable. These folks will get it done cleanly and with minimum ick for you.

They know the market. This was much more useful pre-Google. It’s a marginal benefit now for vanilla loans. If you've got complications, the value of professional help increases.

They’re a good testing ground. If you’ve got concerns, for example you don’t want to draw attention with the bank, a broker can help you work out a sensible approach. This tends to be a consideration if switching banks or restructuring. It's less important when it’s just a rate reduction you’re after.

Advantages of doing it yourself:

Commissions. The bank will pay a trailing commission to the broker AND have to give you a rate discount. If they can just give you the same discount, they’re better off doing that in terms of profit. You can use this to your advantage. I won’t digress on my general opinion of the conflict loan-value linked commissions create and why I tend to avoid them.

Time saving. This might sound contradictory. After all mortgage brokers do everything for you, right? Sure, but you still have to bring them up to speed, and they’ll still try to work through all the alternatives. I’ve done it both ways, and I’ve found DIY quicker.

Practise. Negotiation is a critical life skill. This is a safe environment to practise that skill, especially if you find bargaining icky (you need the practise most!)

If you go with a broker, you can stop reading here. Hand over to them for the next step.

I decided it was DIY time, so moved onto the next step:

Step 3: Ask for a reduction

Start with your existing lender.

You’ve already got the loan, you’re on their books, and they don’t want to lose you. Unless they’re lazy or stupid, they’ll try to keep you. Also, changing lender means paperwork. See if you can avoid it first, before going down that path.

You can ask a variety of ways:

• In person. Visit your local branch, ask to see the loans person, and ask them for a reduction on the spot if they’ll see you. You may have to make an appointment.

• On the phone. Call the bank and ask to speak to the loans department. Ask them.

• Via email. This one is best if you have the personal address of a bank employee.

Then it’s as simple as saying/writing:

Ta da! That's it. It's as simple as that to get started. You don't have to be rude, you don't have be pushy. You just ask.

At this point, it’s a good idea to have a target in mind. Sometimes you’ll be asked where that came from. ‘A broker’ is a good response and gets you out of the ‘we can’t match that rate because we have better services/more branches/better online systems/better options/to pay our directors more’ (kidding!) debate.

Worked Example: Asking nicely.

My local branch has kindly put the photo, name, email address and phone number of my local loans manager on the outside wall. I took a photo walking when walking past.

I went the email route. Here’s the text:

Bob* called and asked what my number was. I said 3.84 per cent.

He said he’d put in a request to head office, because this was more than he could approve locally, and get back to me the following day. He was polite, helpful and true to his word. He called back the next day saying he’d got 3.87 per cent and 4.45 per cent respectively, and would I accept that?

I agreed. We parted happy. Job done.

Same loan. Same bank. Still have an offset. Still have no fees. No paperwork. Happy Lacey.

*Name changed for privacy reasons – I haven’t asked for Bob’s approval to share this story, but I think he’ll be OK with it 🙂

What if they won’t reduce?

Sometimes you get a call back that’s not favourable, or the person you’re talking to fobs you off. It’s happened to me in the past.

Two common reasons/excuses for not reducing:

• You’re on a fixed loan. Usually because you fixed it earlier, or it’s new/in the honeymoon period. If there’s a financial penalty for lowering the rate, it’s rarely worth pursuing, but run the numbers just in case.

• They can’t compete. They’re not going to lower it because they're betting you can’t be bothered switching. They don’t say that to you, by the way. So now the ball’s in your court: are you annoyed enough to switch? Or are you sticking with the status quo and trying again next year?

What’s it worth, anyway?

The answer depends on your mortgage terms.

To help you work it out, I’ve created a simple calculator in Excel. You can download it (no email required). Enter your loan info in the yellow cells and you’ll see what it’s worth to you over the life of your loan.

Worked Example: $31,050

For my loans as above:

• $44k: $697

• $149k: $3,984

• $607k: $26,369

In short: a lot. Not bad for a bit of effort.

Now, it’s important to note I won’t actually save that much.

I have a whopping offset account against the biggest home loan, so I don’t get charged anywhere near that amount of interest. I do this instead of paying down the balance so I have ready cash to invest with whenever I want. For example, if there’s a swift drop in the stock market or I spot a bargain property. But every little bit counts!

So, what are you waiting for? No need to be paying an ignorance/lazy/scared tax. Don't ask = don't get.

Let me know how you go in the comments. On earlier versions of this blog and when I've posted on social media, most people have gotten a rate reduction and it's ranged from 0.25 per cent to 1.6 per cent. Here's hoping you're successful too.

And while you're on the life admin, add a annual reminder to your calendar to do this again next year - and every year you have a mortgage ;)

Author’s note: this article was originally published on the Money School blog in November 2018 and has been refreshed in August 2024.

We’re slowly migrating the blog across to Beehiiv, which means we’re losing the comments on the original Wordpress blog.

Sorry to those who asked questions or made comments, you’re welcome to re-add them here.

About Money School

If you’re new here, welcome! Delighted to have you 😁

This is the blog for Money School, an Australian financial education company.

The main site is at https://www.moneyschool.org.au, but I keep our articles over here on beehiiv.

Everything on the main site and this blog is for educational purposes only. I’m not a financial adviser, nor do I play one on Netflix. I aim to help you learn about money so you can ‘choose your own adventure’.

Money School was co-founded in 2010 by me (Lacey Filipich) and my mother, Fran White. Money School offers workshops, online courses and has an international award-winning book, published with Penguin Life in 2020.

I’m also a regular media commentator on all things personal finance. If you’ve got 16 minutes, you might like to check out my TEDx talk (over 1m views!) on financial independence and mini-retirements.