How much interest rate cut did you receive?
Last Tuesday the Reserve Bank(RBA) reduced the official cash rate by 0.25%. In times gone past, this would have automatically meant an interest rate cut on your home loan of the same amount. Not anymore.
Over recent years banks and lenders have actively trained us to expect a reduction less than the amount passed on by the RBA. As an example from last weeks 0.25% RBA reduction, the amount passed onto existing customers ranged from 0.10% to about 0.14%. I only know of one lender that passed on the full 0.25% reduction. So what happens to the rest of it, does it just go into the bank profit?
Banks and lenders have to balance a number of factors including the interest rates they charge borrowers, deposit rates they offer to those with savings, shareholder return, cost of funds and of course profit. As borrowers we naturally tend to focus on one aspect only that is the interest rate we are paying. After all the interest rate directly affects our loan costs.
So what can we do about it?
Here are some thoughts:
Firstly we can approach our current bank or lender and request an interest rate cut. Sometimes this works and sometimes it doesn’t. It depends on the amount and type of borrowings you have with your lender, how well you’ve conducted your loans and whether your bank wants to keep your business. Only last week I successfully negotiated a 0.61% interest rate reduction for an existing client, so it does happen.
Secondly you can change the type of loan product you have with your bank. You may find a cheaper interest rate option possibly with less features that may still fit your needs.
The third option is to refinance to another bank or lender. This takes some care to make sure you really are getting a better deal. For most people the cost of refinancing will be between $600-$1000 so you need to do your sums and make sure it’s worthwhile. Typically the larger the loan the easier it is to show a positive case to refinance. You may have other reasons for not wanting to refinance due to other relationships you may have with your bank or lender it’s not all about getting an interest rate cut.
The moral of the story: There’s always something you can do.
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