Discounted Interest rates ….How much can I expect?

With competition heating up this year, can we expect interest rates to be heavily negotiated in a drive by banks to get bigger market share? I’m a long term client, the bank should want to look after me, shouldn’t they? If not should I change banks?

These are all comments I hear frequently, but sadly the cheapest rate in the market is not always available to you as a clients, from your own lender. Should you change banks at this point? In my opinion lowest interest rate shouldn’t necessarily be the goal.

We each need to be careful, many billions of dollars of mortgages mature this year amongst the major lenders. In my opinion this could be the opportunity for some very good rates amongst the lenders, but should you be changing lenders for .05% variance between lenders.

For some clients this is an easy decision. The opportunity cost of their time is too high to go through with the painful exercise of refinancing, if the loan value isn’t high enough to justify the cost you just won’t move.

Frequently I am told about clients moving from one lender to another enticed by a better rate or big promises only to find their new personal banker has had a promotion and is no longer in the role.

Your existing Bank may negotiate anyway and for clients with large portfolio’s there is certainly an advantage to having a larger portfolio at one lender.

As a broker I have a range of lenders so the following outlines some offers across various banks:

A loan of $150k could expect up to .1% discount off the advertised rates at some lenders

For another lender .15% is offered for loans of $200k or more,

Again further discounts at some lenders if the loan is $250k or more and others also kick in at $500k.

A larger portfolio of near $1mill would obviously attract discounts.

This is one of the reasons behind my thoughts on packaging loans together so that you have portfolios at various lenders, but each of a decent size so that you are “valuable” to that lender.

To many clients a $50k mortgage is large, and we respect that, it is all relative to their location – town/city, and income of course, but to a large corporate bank a $50k mortgage just isn’t profitable if they start heavily discounting their rates.

Some banks will look to their treasury department and quote rates on a day by day basis. A fixed rate on offer may only be available that day, and if accepted, then it is guaranteed, other lenders are happy to quote and hold the rate up to 30 days.

This is one of the major advantages dealing with a mortgage broker. In times of increases we are aware of which lenders will offer negotiated rates, and how long they can hold those rates for you.

So should I REFINANCE to another lender for a better rate?

I have major concerns where clients think they need to “refinance” and move their mortgage to another bank every time the fixed rate matures. I would certainly recommend caution this year with loans that are maturing. It is easy for a lender to promise the earth but not deliver. Some clients tell me that they believe the only difference between one lender and another is the colour of their cheques. Interest rates can be very similar if not exactly the same, so why are you moving? Unless your portfolio commands a particular or different lender, I always make it my 1st priority to get the existing bank to meet or better the market.

Some lenders now are able to offer a quick refinance service:

Banks have the ability to refinance you without involving your own solicitor through a system they call – “Fast”. The documents are drawn up, sent to you for signing and returned to the banks appointed solicitor. This is all done and refinanced, before your own bank even realizes that you are moving.

Whilst that may be useful for some clients, getting independent legal advice is a minimum requirement for many clients.

Being pressured into moving lenders, keeping it quiet without actually having time to think it through, and before you know it you are banking with the new bank.

Is the grass really greener on the other side? Or does it go brown soon after?