A question I am asked on a daily basis and a question which I feel you would ALL benefit from hearing the answer to. Especially in the current financial climate.
“Why Isn’t MY rate that low?”
The answer to this question is complex and multi-faceted. So, for ease of translation from ‘financial lingo’ to mainstream lingo, I have popped together this fictional conversation which is based on hundreds of similar conversations I’ve had to date.
Bad acting aside, I am fully across the situation so please don’t allow the light hearted conversational tone of this text to distract you from its true benefit…
So… “Why Isn’t MY rate that low?”
Phil came to Wilson Financial with what we call an ‘old rate’.
“I was referred to you by my neighbour. We’re on a really good package but our rate is nothing like the rates I’m seeing online in the two’s, how come my rate is so high?”
To which I told Phil…
“It’s ‘bracket creep’ which is a combination of the bank’s discounts getting larger over time, and the variable rates dropping. When the banks don’t pass on the full drop your rate creeps up against discounts on offer. Sometimes banks even offer NEW clients better rates than they do for existing clients!”
Naturally, Phil was bit miffed.
“Well, that’s a bit ordinary, I’m a loyal client… how do I get a better rate?”
Now, this is where the sting stops stinging so much! Cue my response…
“We have heaps of options. Firstly, you can ring your lender and quote another lender’s rate to try and get them to reduce your current rate. Often, this will give you a little bit of headway to a better rate.”
Thinking of his precious dollars, Phil interrupted…
“I did that and they reduced it a bit, but not much, why can’t they just price match?!”
Yes Phil, I’m hearing you!
“It’s not always that simple, banks are really big institutions, they have price wars among themselves and sometimes they seek new business as a growth strategy… in those cases, if you’re not a new client, you do tend to miss out. The other issue is that not everyone can move banks due to equity restrictions or current income, so you can’t just assume banks will price match. Some lenders also look for different types of clients, be it equity rich clients, or investors, to balance their books or meet certain targets that the regulators set out, it’s really complex!”
“We need to learn to play the game Phil” I thought. (Ok, maybe that’s going a bit too far!)
By now Phil was wondering what to do.
“So, if they won’t price match, what else can I do to get a better rate?”
Ahhh price matching… if only it were as easy as whipping out a competitor’s brochure like we do at the supermarkets!
“You could consider a product switch with your current lender by moving to a different variable rate or even a fixed rate product – they are generally the same for new or existing clients! Or, if you really want to stay variable, and just get a better rate, you could consider moving your business to another bank? Banks are literally GIVING MONEY AWAY to move to them, it’s insane.”
Now Phil was starting to see some light…
“Yeah but won’t I have break costs to leave my bank?”
And the best bit…
“Maybe, but maybe not! In July 2010 the government passed new laws on exit fees. What this means is generally lenders can’t impose an early repayment charge if your loan is variable. If it’s fixed, you could cop a fee for sure, but because most people looking to refinance are on a variable rate you’ll likely just have a one off discharge fee of $250 - $350. You’d also then have land titles office fees of around $300 per property.
(Insert Phil’s thinking face here!)
“When you’ve got lenders willing to give you $4,000 to refinance, you’re really mad if you don’t consider shopping around to switch! We can do all that running around for you and then present you with three of the most suitable refinancing options that take into account your needs and preferences”.
“What??? Ok, there must be a catch! How much do YOU cost me?”
The icing on the cake…
“We are paid by the banks so the entire thing is fee free and obligation free! We negotiate pricing for you so you will possibly get a lower rate than what is advertised online too!
(If you're skeptical, you can read more about that here!)
Now, just like you, Phil liked the idea of saving money…
“That’s crazy! Can you sign me up? What do I need to do?”
And there you have it… a sneak peek into the many HUNDREDS of these conversations I have each year!
Did you know, the average broker has 14 years’ experience? This is why over 60% of Australians are now turning to we brokers!