Refinancing Your Mortgage: How to Negotiate a Better Home Loan

Thanks to banking apps, refixing a mortgage has never been easier. But if you accept the first deal that your lender offers, you could miss out. The mortgage market is competitive, and if you’re willing to negotiate, banks and lenders are prepared to offer substantial cash incentives to secure your business.

Canstar runs through how to negotiate a better home loan:

1 Refinancing your mortgage? Use digital banking

Banks are increasingly using their apps and digital banking services to offer new rates to customers. Not only are digital communications the quickest and most direct method to communicate with your bank, they also make negotiating less nerve-racking. It’s far easier to push for a better deal when the human face-to-face element is removed.

In the weeks before your loan term expires, your bank will start to offer you new rates, but don’t lock in a deal before you’ve shopped around. When researching the best mortgage, you need to spend a little time researching what’s on offer in the market. Although this can take a couple of hours, it could potentially save thousands of dollars.

2 Refinancing your mortgage? Compare lenders’ offers

Treat refixing your mortgage like arranging home renovations, and get at least three quotes from banks/lenders. Don’t just visit their websites, contact them directly for a personalised quote.

What to ask for:

• If you’ve a sizeable deposit, don’t just settle for their special rates, ask for an added discount, at least an extra 10 basis points.
• Ask for a cashback. The going rate is 1% of any loan.
• By negotiating straight with a lender, you’re cutting mortgage brokers out of the deal – so don’t be shy to ask for the broker’s cut of the pie, too.

Mortgage brokers can provide an invaluable service, especially for first home buyers new to the housing market, and those with complex financing needs.

But renegotiating an existing loan is something that’s pretty straightforward, and if you’re prepared to do the mortgage broker’s work comparing loans, why not ask for their cut?

For securing a new mortgage, a broker will get paid a commission by the lender, usually around 0.85% of the loan, which could be in your pocket.

3 Refinancing your mortgage? Be prepared to switch

If you find a better deal, be prepared to switch, and let your current lender know your intentions. If they think they’re about to lose your custom, it could incentivise them to match, or beat, their competitor’s offer.

While switching your home loan provider will involve time, effort and paperwork, the financial benefits could be substantial.

How much you could possibly save

According to stats from the Reserve Bank of New Zealand, so far this year, the average mortgage to purchase a home in New Zealand is $588,558.

Rounding that figure down, if you’re refixing a $550,000 mortgage, what are your possible savings by refinancing a better deal?

Special rate discount: $550

If you mange to obtain an extra 0.10% p.a. discount on the bank’s carded special rate for those with over a 20% deposit, you’ll save $550 in interest over the first year of the life of your new loan.

Cashback: $5500

If you manage to negotiate a 1% cashback, be aware that they come with conditions, and usually tie you into keeping your mortgage with the lender for two or three years, which isn’t ideal if you want to renegotiate your loan more regularly.

Broker’s cut: $2750

You might not be able to negotiate the full 0.85%, but aim for 0.5% and it could be more cash in your pocket.

Total savings: $8800

Of course, the savings listed above are just an example. But they’re not unrealistic. In the current mortgage environment, they are very achievable. And over the 20- to 30-year life of a home loan, they can really add up, especially if you use the extra cash to pay off your mortgage faster.

So if it’s time to refix your mortgage, try renegotiating a better deal, because if you don’t ask, you don’t get.

About the author of this page

Bruce Pitchers is Canstar NZ’s Content Manager. An experienced finance reporter, he has three decades’ experience as a journalist and has worked for major media companies in Australia, the UK and NZ, including ACP, Are Media, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. As a freelancer, he has worked for The Australian Financial Review, the NZ Financial Markets Authority and major banks and investment companies on both sides of the Tasman.
In his role at Canstar, he has been a regular commentator in the NZ media, including on the Driven, Stuff and One Roof websites, the NZ Herald, Radio NZ, and Newstalk ZB.
Away from Canstar, Bruce creates puzzles for magazines and newspapers, including Woman’s Day and New Idea. He is also the co-author of the murder-mystery puzzle book 5 Minute Murder.