{"id":22570,"date":"2023-02-07T15:12:31","date_gmt":"2023-02-07T04:12:31","guid":{"rendered":"https:\/\/www.purefinance.com.au\/?p=22570"},"modified":"2024-08-30T16:07:37","modified_gmt":"2024-08-30T06:07:37","slug":"a-guide-to-saving-money-on-your-mortgage-in-2023","status":"publish","type":"post","link":"https:\/\/www.purefinance.com.au\/a-guide-to-saving-money-on-your-mortgage-in-2023\/","title":{"rendered":"A guide to saving money on your mortgage in 2023"},"content":{"rendered":"\n

Look, we\u2019re just going to come right out and say it: it is not a fun time in home loan interest rate land. Since the RBA began raising the cash rate in May 2022, there have now been 9 consecutive increases, taking the cash rate from a record low 0.1 per cent to 3.35 per cent in just eight months<\/a>, the fastest tightening cycle in a generation. Sigh.<\/p>\n\n\n\n

We won\u2019t get into too much detail on why that is in this piece (we\u2019ll let Jessica and Johanna from Forbes do that here<\/a>). Because what we actually want to talk to you about are all the things you can do to make sure your mortgage costs are kept to an absolute minimum this year, while we all do our best to navigate the turbulent economic waters we find ourselves in.<\/p>\n\n\n\n

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Ok, enough commiserating. Here\u2019s our ultimate, jargon-and-bullshit-free guide to saving money on your mortgage in 2023.<\/p>\n\n\n\n

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First up, let\u2019s acknowledge that this process might feel stressful or daunting for you - that is totally normal and you are definitely not alone. Remember, mortgages (and financial concepts in general, to be honest) are often confusing and intimidating on purpose, designed to keep people overwhelmed and apathetic and ultimately putting more money in the bank's back pockets. But remember, that with the right knowledge and guidance, it is very doable - for everyone.<\/p>\n\n\n\n

Now, in the interest of taking something that is pretty complex and making it as simple as possible, there are three main options for those looking to save money<\/strong> on their mortgage in 2023<\/strong>. These are:<\/p>\n\n\n\n

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  1. A rate review (variable loans only*) at their current bank<\/li>\n\n\n\n
  2. A switch to a cheaper loan product (at their current bank)<\/li>\n\n\n\n
  3. A loan refinance (moving to a whole new loan product\/bank)<\/li>\n<\/ol>\n\n\n\n

    *If you\u2019ve got a fixed rate loan, head on down toward the bottom of the piece<\/em><\/p>\n\n\n\n

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    The trick is to work out which option is best for you, and from there, how to get the best outcome possible. Alright, let\u2019s get into it\u2026<\/p>\n\n\n\n

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    1. How to save money on your mortgage with a loan review<\/h2>\n\n\n\n

    As we like to say at Pure Finance: a variable rate loan is a negotiable one, and in our opinion, the humble loan review<\/a> is a hugely underrated mortgage saving tool. Of course, refinancing is also an important part of keeping mortgage costs low (more on this later), but they aren\u2019t always free and can negatively impact your credit score if you do it too often.<\/p>\n\n\n\n

    Put simply, a loan review consists of assessing where your current variable interest rate is sitting in the market (i.e. is it competitive?) and then contacting your bank to ask for a discount. If you\u2019d rather have someone do this for you, then we are your people and you can contact us here.<\/a> However, if you\u2019d rather give it a go yourself, here is our step-by-step guide for DIY loan review success. After all, if you do it as often as we do, you get pretty good at it.<\/p>\n\n\n\n

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    STEP 1: Do some market research<\/strong><\/h3>\n\n\n\n

    First up, you need some negotiating power in the form of cheaper rates from other banks. Similarly, some banks often use cheaper introductory rates to \u2018lure\u2019 new customers, while leaving many of their existing customers on higher, less competitive ones. So, make sure you also check the rate your current bank is offering new borrowers, and see where yours sits in comparison. Then, make a list of the banks and their rates (2-4 should be enough), and have it handy for Step 2\u2026<\/p>\n\n\n\n

    TIP: Remember, you have to make sure you're comparing apples with apples here. For example, is your rate type fixed or variable? If it's variable, does it come with an offset account (aka a 'package') or without one (aka 'basic'). Whatever the particulars of your loan are, you\u2019ll need to make sure you\u2019re comparing with loans from other banks with the same features. A lot of the time a basic variable rate will be cheaper than a package loan (more on that next). Don't let the bank talk themselves out of reviewing your loan because you've (unknowingly) compared the wrong loan type.<\/p>\n\n\n\n

    Secondly, you'll also need to check in on where your remaining loan balance is sitting, against an estimate of your property value (aka your Loan-to-Value Ratio or LVR worked out as a percentage). Banks generally reward lower LVR's with lower interest rates (and love to advertise these). If you know you're sitting at 90%, you unfortunately can't expect the same interest rate as those offered to loans sitting at 70%. But, this doesn\u2019t mean you can\u2019t do some market research and ask for a discount!<\/p>\n\n\n\n

    Too much maths? We hear you. Reach out and we'll be more than happy to help.<\/a><\/p>\n\n\n\n

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    STEP 2: Call up your bank and get ready to negotiate<\/strong><\/h3>\n\n\n\n

    Armed with your list of cheaper rates, call up your bank and let them know that you\u2019ve seen better rates elsewhere, and that you\u2019re thinking of moving if they don't give you a discount. Sounds daunting and you\u2019d rather not? We get it. Here\u2019s a bit of an example script of how the conversation could go, to help take the edge off:<\/p>\n\n\n\n

    \u201cI\u2019ve been doing some research and I\u2019ve seen that Bank A is offering XX% and Bank B is offering XX%. I\u2019ve also noticed that you\u2019re offering XX% to new customers. I'm currently paying XX% which seems a bit high, so what can you do to keep me?\u201d<\/em><\/p>\n\n\n\n

    Alternatively, you could also name drop us to really get things moving:<\/p>\n\n\n\n

    \u201cI\u2019ve been speaking with a mortgage broker and they\u2019ve suggested I move to Bank A at XX%. Can you match that?\"<\/em><\/p>\n\n\n\n

    Remember, if the person you speak to first isn't overly helpful, or the discount they offer isn't close enough to what you\u2019re after, you can ask to be put through to \u2018someone else that can help further\u2019. Then, you\u2019ll most likely be transferred through to your bank\u2019s retention department, which is exactly who you want to be speaking with, considering it\u2019s their job to try and keep you.<\/p>\n\n\n\n

    At this point, your bank will come to you with an offer, and while you don\u2019t really have much more to bargain with here, you can definitely still try:<\/p>\n\n\n\n

    \u201cThat\u2019s still pretty far from what your competitors are offering. Can you do any better? Otherwise, I think I\u2019m still going to leave.\u201d<\/em><\/p>\n\n\n\n

    From here, it\u2019s just a matter of working out whether it\u2019s worth staying or going. Which brings us to\u2026<\/p>\n\n\n\n

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    STEP 3: Weigh up your options and do the maths<\/strong><\/h3>\n\n\n\n

    Once you\u2019ve got your offer from your bank, you\u2019ll want to work out whether it\u2019s worth taking them up on it, or refinancing somewhere else. Here, you\u2019ll need to consider things like:<\/p>\n\n\n\n

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    1. If you do decide to leave, will the new loan product genuinely be better than the one you\u2019re already on? Similarly, is the bank you\u2019re moving to notorious for rate fluctuations, or are they relatively stable? (Better the devil you know, and all that)<\/li>\n\n\n\n
    2. What will the financial benefit be in real terms, once all costs have been factored in? Often times when we do the maths, we can see that once all the refinancing costs are included (e.g., a fee for leaving your current bank, fees for setting up your loan at the new bank, government fees) it can take 10 - 24 months for the lower repayments to equal those costs. A cashback offer can help to cover these costs, but often is the bank\u2019s way of enticing potential customers to a non-outstanding interest rate, so you need to be discerning if you\u2019re doing this alone.<\/li>\n\n\n\n
    3. Could I potentially get the same result from asking for a discount, or moving to a cheaper product, at my current bank? (Does your current bank have any comparable products [often they will], and is a move to a whole new bank really necessary? Has your broker really done all that they can to get your current bank to come to the table?)<\/li>\n<\/ol>\n\n\n\n

      We know we sound biased, but a good mortgage broker<\/a> is a free sounding board that legally has to act in your best interest. They can help you to understand these questions and guide you with your decision making. Or, they can even just be a second opinion.<\/p>\n\n\n\n

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      2. Switching to a cheaper product at your current bank<\/h2>\n\n\n\n

      Another option is reassessing the loan product you\u2019re currently on, and cross-checking that against cheaper options at your current bank. What do we mean by this? If you\u2019re currently on a variable rate that comes with an offset account<\/a> (aka a \u2018package\u2019 variable rate), your interest rate, a majority of the time, will be higher than a variable rate that doesn\u2019t come with an offset account (aka a \u2018basic\u2019 variable rate). The other kicker is that package loans often come with an additional fee - either a lofty annual one or a smaller monthly fee. Switching products could help move you to a lower interest rate, and reduce the fees you\u2019re paying every year. <\/p>\n\n\n\n

      Generally speaking, we usually recommend looking to keep at least $10,000 in your offset account, to make sense of the additional fees. If you find you\u2019re struggling to maintain this amount, it could be worth revisiting the numbers to see if you could better save on a basic loan product (without an offset account). <\/p>\n\n\n\n

      HEADS UP: This option does include a fair bit of finicky, personalised maths, because you need to consider the difference in the two interest rates affecting your repayments, how much money you have in your offset account and how that helps reduce your monthly costs, while taking into consideration the fees for having an offset account. (Whew!)<\/p>\n\n\n\n

      If this is making your head spin, please reach out to us<\/a> (or another trusted mortgage adviser) to help you understand whether this is a good option for you. We know we bang on about personalised advice, but this option truly benefits from it.<\/p>\n\n\n\n

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      3. Save money on your mortgage with a refinance<\/h2>\n\n\n\n

      So if neither the rate review or the product switch yielded the results you were after, then it might be time for a loan refinance. Again, we\u2019d recommend using a trusted mortgage broker for this because it can save you A LOT of time and effort (for free!). But if you\u2019d like to do it yourself, and you absolutely can, then here are our best tips:<\/p>\n\n\n\n

      Again, make sure you\u2019re comparing apples with apples here. <\/strong>It will be very unfortunate if you spend a whole heap of time researching other loans, only to find you\u2019ve been looking at owner\/occupier rates when you\u2019re looking to refinance your investment loan (as just one possible example of many).<\/p>\n\n\n\n

      Be open to smaller, lesser known banks and lenders.<\/strong> As a general rule, major banks tend to be more expensive, and they are no better than some of the lesser known ones. If it\u2019s savings you\u2019re after, the little guys might be worth a look.<\/p>\n\n\n\n

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      By the way: are you looking for a cheaper rate AND a more ethical bank? It\u2019s music to our ears! Let us help point you in the right direction.<\/a><\/em><\/p>\n\n\n\n

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      Be as discerning as possible and look out for dodgy advertising\/marketing<\/strong>. Unfortunately, there is a lot of misleading advertising happening with mortgage rates at the moment and it can be really hard for people to navigate the rate comparison environment. Some things to be aware of:<\/p>\n\n\n\n