Negotiating a Loan - How to save thousands of dollars
We all want the lowest price or “best value for money” when it comes to buying goods and services we use in our daily lives. It’s simply common sense.
This article will give you some simple practical tips on negotiating the terms and conditions of any loan you might take out, whether or not you are a DHOAS candidate, thereby potentially saving you and your family thousands of dollars.
Understandably, we haggle over the price of real estate (generally the biggest purchase of our life); and we search for bargains on staples, such as clothing, food and cars. And yet, we so often underestimate our buying power as ADF members when it comes to the cost of money. An example of this is the tendency of many people to accept the first interest rate offer from a lender when arranging a mortgage on their home or investment property.
Remember that interest is simply the price that lenders charge to make their product (money) available to us, their customers, for whatever reasonable purpose agreed between the parties. In that sense, interest rates are negotiable, just like any other price.
Whether we’re in a position to negotiate successfully depends upon our financial circumstances, but as ADF families we should understand that we are highly valued prospective customers for lenders, given our job security, reliable cash flow and good reputation (whether or not deserved!) for conservative and sensible money management.
So whether you’re seeking a home or investment property loan, don’t be afraid to negotiate. While merely asking the question (“is that your best rate?”) can achieve good results, the key to saving even more money is becoming a well-informed consumer who can confidently negotiate a deal that’s in your best interests. Here’s where the internet comes in. It’s a limitless mine of information from all manner of lenders who are very keen to win business from desirable borrowers like ADF members; but be careful to assess the quality of that information, its sources and its independence (for example, on so-called comparison sites).
Here’s an example of savings that can be made. An ADF member’s bank offers her a variable interest home loan of $500,000 over 25 years at an interest rate of 5%pa (assume for purposes of this example that the rate stays at that level for the period of the loan). The member researches the market and finds that she can borrow on the same terms, but at a rate of 4.5%pa. She approaches her bank with this information and to her pleasant surprise, learns that her bank will match the opposition lender’s terms in order to keep her business. The saving for our member is more than $40,000 over the life of the loan.
Surely, a saving like that is worth putting in the effort to achieve, but doing so is completely up to you. You should not expect a bank (or even a broker) to offer you the best deal up-front. It’s a competitive market, so that your ability to win the best deal depends on your willingness to negotiate on every aspect of your mortgage, including interest rates and fees.
So don’t even hesitate. When an offer is made, assume that it isn’t the end of the story. Let the lender know that you’re looking around and that you’re well-informed. You may be surprised by the savings you can make, all because you’ve used your market power as an ADF consumer, combined with your effort to do the homework that most consumers fail to do, to their considerable cost.
If you’d like to know more about mortgages and related consumer issues, good starting points are www.moneysmart.gov.au hosted by the Australian Securities and Investments Commission and www.adfconsumer.gov.au hosted by the ADF Financial Services Consumer Centre.
Air Commodore Robert M. C. Brown AM BEc FCA
Chair, ADF Financial Services Consumer Centre
15 April 2016