Mortgage holders in Australia are facing a challenging landscape as interest rates continue to rise. With three consecutive rate hikes, borrowers are being squeezed, and it's time to take action to secure a better deal. The key to success lies in understanding and leveraging your lender's 'edge of cliff' retention price, a concept that can significantly impact your mortgage journey.
Navigating the Edge of Cliff
Angus Gilfillan, CEO of Finspo, emphasizes the importance of borrowers finding their lender's retention price threshold. This is the point at which lenders are most motivated to keep customers, often offering their best rates. Gilfillan advises that borrowers need to be proactive and informed, casting a wide net to find the cheapest prices. By securing a competitive rate from a rival lender and submitting a discharge form to your current bank, you can trigger a call from their retention team, who will then offer their most competitive rate to retain your business.
Property Equity and Lender Competition
The value of your property plays a crucial role in this strategy. A rising property value increases your equity, making you a more attractive customer to lenders. For instance, a borrower with 20% equity can now boast 30%, making them a safer bet. Gilfillan notes that while deep discounts are less common than before, there are still lenders willing to fight for new business, especially those in growth mode. It's worth considering that switching loans may incur fees of over $1,000, but the potential savings could outweigh this cost.
Cash Back Offers: A Temporary Relief
In 2023, many lenders withdrew cash back offers for new mortgage customers, but smaller lenders still offer these incentives. Sally Tindall, Canstar's data insights director, suggests that cash back offers can be valuable, especially when coupled with low fees and competitive interest rates. Larger debts demand more competitive interest rates, and homeowners are currently paying over 6% on variable mortgage rates. Tindall estimates that a competitive rate for an owner-occupier will start with a five, but switching lenders may be necessary.
Taking Action and Seeking Support
To navigate this challenging environment, borrowers should take proactive steps. This includes organizing a home valuation to understand their property's value and equity. Additionally, seeking financial advice from professionals or organizations like the national debt helpline can provide valuable guidance. While the process may seem daunting, understanding your lender's edge of cliff and leveraging property equity can lead to significant savings and a more favorable mortgage deal.
