How Much Will a Bank Discount the Mortgage Interest Rate?

30 years ago people would go to the bank with fear and trembling to request a loan. How times have changed. Now banks are often willing to discount advertised interest rates to win good clients – and even make contributions to legal fees. So what makes a bank tick? What are the things that make them more willing to discount your mortgage interest rate?

• Size of Loan – like just about anything, the more you buy the cheaper it gets per pound. Loans are similar – if you are borrowing $1,000,000 then you are much more likely to get a cheaper interest rate than the person borrowing $100,000

• Term of Loan – If you commit to a 7 year interest term, then the bank has much more confidence you will stick around compared to a person on a floating rate. The longer you fix, the more willing the bank may be to discount. (We aren’t suggesting that fixing is the best strategy at the moment.)

• Financial Position – If your loan is 80% or less of the purchase price then the bank is happy. As soon as you creep over the 80% mark you are deemed to be a greater risk by the bank and their appetite to discount the interest rate diminishes. With a 95% loan the motivation to offer a discount is lower.

• Legal Fees – It is common to see a $1,500 legal fee contribution, but if you take this contribution it may impact the amount of discount you will get on your interest rate. So it is worth asking what the interest rates would be if you didn’t take the contribution

• Break Fees – If you are refinancing from another bank and you have break fees, then the new bank may be prepared to make a contribution to these fees. However, like the legal fees, it can impact the rate discount you get.

At the end of the day it’s all about negotiation. Don’t be afraid to ask your bank what they can do for you. And if you’d prefer not to do it yourself then contact Alan Henderson CA, AFA (AFA 132665) at www.erskineowen.co.nz and he will do it for you.