When It Comes To Banks, Always Look A ‘Gift Horse’ In The Mouth

We’ve all heard the saying “don’t look a gift horse in the mouth”, but have you ever researched what it means?

A specialist can determine the age of a horse by checking their mouth, as when a horse ages their teeth will change shape, pushing forward. So, if you were to receive a horse as a gift, then look at its teeth, this would imply you’re assessing its value instead of being grateful for the gift.

Whilst this proverb is useful in everyday gift-giving situations, it doesn’t necessarily apply when your bank is the one providing the “gifts” or “discounts”.

You don’t have to be a neigh-sayer or stirrup trouble to get the best deal from your bank, you just need to know where to look, and what to ask.

Here are five things you can do to make sure you get the best odds this Melbourne Cup day.

#1 Remember that your home loan rate is negotiable

New research from RateCity shows a rate reduction of 0.10 per cent off the average $400,000 home loan could save you $6,792 over 25 years.

If you’re a loyal customer, convincing your bank to lower your current home loan rate could be as easy as picking up the phone. Do a little research around what rates your bank is offering new customers, as these rates are typically lower. Call your bank and ask for this rate. Banks want you in their books, so chances are they’ll give you a rate cut.

Neobanks are growing in popularity, open banking is just around the corner and banking giants are feeling the pressure as competition heats up. If your bank hasn’t passed on the rate cuts in full, or your interest rate is above average, remember that you can always use competitor rates to negotiate.

#2 When you’re buying a home, check if LMI applies

If you are being offered a low interest rate home loan by a lender that is asking for a minimum deposit amount of 5 per cent, make sure you calculate the potential Lenders Mortgage Insurance cost.

Lender’s Mortgage Insurance (LMI) is an insurance policy that applies to borrowers who do not have a 20 per cent deposit. It can cost you tens of thousands of dollars and is often hidden in the fine print of the home loan application process.

In some cases, saving a 20 per cent deposit can seem impossible. Recent figures from Corelogic show the median house price in Sydney is $1,295,000.

This means you would need to fork out a 20 per cent deposit of $259,000 in order to dodge LMI.

If you can’t save the 20 per cent deposit, you have two choices to pay LMI: either upfront or as a part of your loan. Adding LMI onto your home loan is not ideal, as it will incur interest at the same rate as your loan, increasing your monthly repayments and the total cost.

If you can afford to pay the LMI upfront, you may be able to save tens of thousands of dollars in interest.

Before you apply for a home loan, make sure you calculate the total cost of your loan including all fees, interest and LMI. By calculating the total cost before you apply, you can make a fairer comparison and be sure you’re getting the best deal.

#3 Check you qualify for the advertised rate

It may seem silly to double check an interest rate that is advertised on a lender’s website, but it’s important that you do. Not all lenders will offer you the advertised rate on their site, due to eligibility criteria you need to meet first.

If you have a bad credit rating due to late bill payments or unpaid debts for instance, your lender may see you as a financial risk. If your lender sees you as a risky applicant, they can increase your interest rate and charge you higher fees. This way, if you default on your repayments, they have reduced their risk.

However, if you have a fantastic credit rating, personalised rates may work in your favour. When you compare home loan lenders, make sure you ask if they offer discounts on the advertised rate for borrowers with excellent credit ratings.

Insider Tip: Mortgage brokers can often get exclusive discounts and deals from lenders on advertised rates, so if you are yet to speak with a broker, it pays to check if they can get you a better deal first.