The three-step strategy to ensure you get the full RBA rate cut

Question – Hi Nicole, I have a $400,000 mortgage with ME Bank. They did cut my rate by the full amount [that the Reserve Bank of Australia did] last month, but this time they’ve only given me 0.15 per centage points [of the 25 basis-point cut]. I’ve heard that the best rates are now below 3 per cent, so I am a little annoyed about this. I am on a variable rate. What can I do to get the full reduction and do I need to move? I really can’t be bothered. Any tips would be appreciated, Dennis.

Answer – Here is my three-step strategy to ensure you get the rate cuts the Reserve Bank has delivered, Dennis.

Step 1.

Straight-up ask for the full 25 basis-point whack this time, too. Okay, the customer service person may laugh in your face, but the sound will die in their throats once you reveal you know about the generous discounts banks offer to select customers – up to 1 per cent for major banks and probably a bit for the far-more-competitive ME Bank, too.

Bank headline rates are no more than a starting point so, unlike with non-banks, you have bargaining power if you’re a long-standing customer, and your borrowings amount to more than, say, $250,000.

This should put all banks’ rates a bit closer to the far cheaper ones in the market – yes, you're right, some are now below 3 per cent.

A further tip on this too: to lenders’ credit, a rate cut will be automatically passed through to your loan but not to your repayment. When the new rate kicks in on July 23 (rest assured, a delay is a common profit ploy) – you will all of a sudden be painlessly paying extra.

You’ll need to apply if you want your direct debit reduced, but don’t that. I don’t know for how long you’ve held your loan, but if your $400,000 loan was new, even with just 40 basis-points of cuts, simply maintaining your repayments at their existing level would mean a no-pain gain of some $40,000 all up. And you'll be debt-free two years earlier.

Step 2.

Threaten to leave and be prepared to lend weight to your request.

Threaten to leave and be prepared to lend weight to your request.

Lenders are acutely aware you now have true mortgage mobility (unless you’ve fixed your rate).

Don’t forget either that many rival institutions will happily waive any set-up fees to get your business across.

However, you may not even have to bother. This could well be the bargaining chip that secures you a much cheaper rate with ME Bank, with not a jot of extra effort.

Step 3.

Actually switch. If the bank doesn't acquiesce, no matter – I pretty much guarantee that by ditching and switching you’ll garner a far greater discount.

Improving your deal to 3 per cent and just maintaining your repayments – so if you do what I call "up stumps but still stump up" – represents a saving of almost $70,000. That's about an annual wage. Do you think it justifies a bit of paperwork?

Nicole Pedersen-McKinnon delivers Smart Money Start in schools and runs

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