Negotiating your mortgage - Guest Post
Last week's Housing Hacks blog looked at how to use KiwiSaver to get into your first home faster.
Exploring the theme further, we invited Squirrels Mortgage to give us some tips on DIY mortgage negotiations.
By Peter Norris
At the end of the day, negotiating a rate isn’t about hustle and it isn’t about standing your ground or being a good salesman. It’s simply about knowing what to ask for and when to ask for it.
Over the last 5 years, all the top 5 banks have been fully entrenched in the pricing war. Large discounts and crazy cash backs were a regular occurrence. This isn’t quite the case anymore. Rates have moved up slightly since their record lows and the discounts banks are offering aren’t the loss leading ones that we have previously seen. On top of that, cash back amounts – whilst still there – have dropped significantly. At the moment, there’s really only two banks at any one time in the pricing war and these banks change depending on their eagerness to clawback some market share.
That being said, sharp rates and decent cash backs are absolutely still available but you need to know which banks to go to at which time. Then, assuming you get the right bank, you need to know what to ask for. The banks are profit driven at the moment and they are looking to strengthen their overall book. Therefore, the better your situation, the more likely you are to get a good offer.
You can strengthen your case by:
Having a low LVR – For every loan a bank lends out, the need to keep money on their books as a protection/fall back. The better the LVR, the less % of that loan needs to be held and therefore the more funds they can then have to keep lending out. Therefore, a bank will often pay a higher price to get lower LVR lending on their books. Having an LVR of less than 60% is a good place to start.
Owner Occupied Property – Most major lenders at the moment are pricing differently for loans secured by investment properties vs. loans secured by owner occupied properties. Importantly – my suggestion would never be to bundle your properties up in order to get a better rate. You should be looking to split bank to protect yourself and price should be your last consideration.
That being said, any lending secured by your owner occupied property will attract a better pricing package in this market than that secured by investments.
Strong Serviceability – This ones pretty obvious. The better your income, the better your ability to service the lending and therefore the more attractive you are to the bank. Simply put, banks aren’t keen on taking too much risk in this market and so a good strong income reduces their risk and makes you as the client a better bet.
Overall, negotiating a rate isn’t rocket science. The stronger the overall proposition the better the price. However, knowing what bank is giving what type of pricing for what type of scenario is the hard part. This is where genuine advice from professionals who do it day in and day out can be valuable. It shouldn’t be all about price. Your financial future can be strengthened by having a correct loan structure that’s based around what it is your trying to achieve. This is personal, and an off the wall special isn’t personal.