Mortgage holders in Australia are facing a challenging landscape as interest rates continue to rise. With three consecutive rate hikes, borrowers are feeling the squeeze, and it's time to take action to secure a better deal. The key to success lies in understanding and leveraging your lender's 'edge of cliff' retention price, a concept that could save you significant amounts of money.
The Edge of Cliff Retention Price
Angus Gilfillan, CEO of Finspo, emphasizes the importance of borrowers finding their lender's 'edge of cliff' retention price. This is the point at which the lender is willing to offer their best price to keep you as a customer. It's a strategic move that borrowers should be prepared to make.
In the past, banks were more competitive, and borrowers could easily secure savings of half a percentage point by simply asking for a better deal. However, the landscape has shifted, and lenders are now prioritizing profitability over market share. As a result, borrowers need to be more proactive and informed.
Strategic Borrowing
To secure a reduced rate, borrowers should first line up a more competitive rate from a rival lender. This competitive offer acts as leverage, prompting the current lender to take action. By submitting a discharge form with their current bank, borrowers signal their intention to leave, triggering a call from the retention team offering their most competitive rate.
Property Equity Position
Before lodging a discharge form, borrowers should consider their property's equity position. A rising property value translates to increased equity, making the borrower more attractive to lenders. For instance, a borrower with 20% equity can now aim for a better rate if their equity has increased to 30% or more.
Cash Back Offers
While many lenders withdrew cash back offers in 2023, there are still opportunities available, particularly from smaller lenders. These offers typically range from $2,000 to $4,000, depending on loan size and borrower conditions, such as having at least 20% equity. Sally Tindall, Canstar's data insights director, suggests that cash back offers can be valuable if they come with low fees and a competitive interest rate.
Conclusion
In a challenging financial environment, borrowers must be proactive and strategic. By understanding their lender's 'edge of cliff' retention price and leveraging competitive offers, they can secure better interest rates. Additionally, considering property equity and exploring cash back offers can further enhance savings. It's a complex process, but with the right approach, mortgage holders can navigate these rising interest rates and keep more money in their pockets.
