Learn how to negotiate for a lower mortgage rate in Australia with expert tips and avoid overpaying on your home loan.

For those looking to take out a home loan, getting the lowest possible interest rate on the mortgage is the ultimate goal. The lower the interest rates, the less you’re paying back as interest on the loan, and the more manageable the repayments will be.

Can you negotiate your mortgage rate? Absolutely. Borrowers are often unaware that it is possible to negotiate for a lower mortgage rate, and instead settle for the rate that is simply offered at the time they have approached lenders. 

5 tips for negotiating the interest rate on a mortgage

1. Compare current rates from competing lenders

Comparing interest rates from different lenders should already be an integral part of the process when looking for a home loan — it will allow you to review a wider selection of options to consider and choose from.

However, the lender that offers the best interest rate may not always have the best terms for your financial goals. In such cases, it’s important to work with a mortgage broker who can help you compare rates that best fit your financial circumstances - you can then use researched rates from different lenders and present them to your ideal lender to show them that there are lower rates available, using it as leverage to negotiate for a better rate.

Each lender will have their own margins, and not every lender will be able to realistically offer you the lowest rate on the market. This means that you may have to do some legwork to approach multiple lenders for negotiation.

2. Use your credit score

Negotiation works best when you present as capable of repaying the loan to lenders. Lenders will be more flexible and open to negotiate with borrowers who:

• Have a good credit score
• Have a consistent history of repaying debts and making repayments
• Are employed on a full-time basis
• Have considerable savings or personal funds
• Are borrowing with a low loan-to-value ratio (LVR) - having a high LVR over 80% can reduce your ability to negotiate for a better rate

Having the above circumstances makes you more attractive to lenders as a borrower, giving you more bargaining power to negotiate for a better mortgage rate.

3. Ask for the “new customer” rate  

Lenders often put their best rates forward to attract new customers — these rates are often not offered to current borrowers as they are already “part of the funnel”. Don’t be afraid to ask the lender for the same rate that they offer new customers. Many lenders are willing to reduce the rates of an existing mortgage to keep their existing customers. 

Of course, this strategy only works if you have been reliably making repayments over the course of the loan and have a good credit history. Any sign of missed payments can make your lender lose confidence in your ability to repay the loan and cause them to be less willing to offer you a more favourable rate. 

4. Use customer loyalty as a bargaining chip 

If you have been with a lender for a long time, you can negotiate better rates by explaining and claiming your loyalty to them. This approach is particularly effective if you have a good history with the lender — showing that you are a valuable customer.

5. Be prepared to make a switch

In direct contrast to being loyal, you can also negotiate by making the switch. Negotiation is a game of push and pull — and it’s not uncommon for lenders to initially refuse a request to lower rates, only to offer it later on when you declare that you will be switching lenders. 

Even in the case where your lender ultimately does not offer lower rates, refinancing with another lender that is willing to do so can still help to reduce the cost of interest, make repayments more manageable, and shorten the term of the loan. Be sure to account for any additional costs such as break fees when switching between lenders. 

Negotiating a mortgage rate can seem daunting at first, but you can gain greater confidence in your bargaining power by doing your research on what other lenders offer, whether on your own or with the help of a home loan broker. Read our guide to home loans to learn more about them and what you should consider when searching for one.