How one phone call to a bank slashed $60,000 from a mortgage bill

Interest rates are on the rise, with the RBA hiking twice this year and likely to pull the trigger again. The vast majority of banks, of course, are passing on the cuts in full.

But don’t forget, banks can only pass on higher interest payments if they have customers.

And for this reason, they need us as much as we need them.

Competition for borrower money is fierce. It’s not like back in the day when there were only a handful of banks competing for our money. There are now more than 100 lenders in Australia, vying for our business.

So if you’re not happy with the deal you have, there may be some leverage there to demand a better deal from your bank.

This can be as simple as picking up the phone.

Not long ago, I did just that and secured a better deal on an investment property mortgage. That phone call saved me $60,000.

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Rates are likely to keep going up, so you may need to be proactive. Picture: Martin Ollman

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See, I’d spent the few years prior paying interest only on a loan balance of $124,000.

When the interest-only period expired and it was time to begin paying down the principal, it rolled into a standard variable loan.

What I didn’t know, like a lot of people, was that the bank wouldn’t roll me onto their best variable rate. No, they roll you onto the highest rate that they can get away with.

My new rate was actually 8.13 per cent. I was paying lazy tax, plus lazy compound interest on top.

Banks don’t reward loyalty. Their strategies are based on recruitment and retention. Disengaged long-term customers inflate their profits.

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Their “recruitment” strategy sees new customers get all the perks like discounted rates and cashback payments. The only way to get a piece of that action as an existing customer is to threaten to leave.

Knowing all this, I got ready to pick up the phone. But first, I made sure I knew what my bank was offering new customers. At the time, new investors were being offered 5.07 per cent; an incredible 3.06 per cent lower than mine. There were also two other banks offering 4.99 per cent. This was good information to be armed with.

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It might be time to break up with your bank, or at least threaten to. Picture: Damian Shaw

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After calling the bank and spending the obligatory 10 minutes on hold, I finally spoke to someone. Here’s how it played out.

Me: I want to talk about the interest rate on my loan. It’s 8.13 per cent. That’s too high.

Bank: Yes, that is the rate on our standard variable product.

Me: OK, I know I rolled over from interest-only so should I be on a different variable product?

Bank: There is a better rate on our basic variable package. That is 7.23 per cent.

Me: OK, I see from your website you’re offering new customers 5.07 per cent on investment loans.

Bank: Yes that is only for loan balances higher than $150,000.

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Me: OK so what’s the best rate you can offer me? If it’s 7.23 per cent, I will need to leave because I have two other lenders at 4.99 per cent that I am eligible to join.

Bank: We can give you the 7.23 per cent deal plus a discount of 1.95 per cent, so your new rate will be 5.18 per cent.

Me: That sounds a lot better.

Bank: OK so we can send you the forms, you need to sign, scan and return.

All up, that one call had saved me 2.98 per cent on my repayments, which meant a saving of $250 a month, $3000 a year and $60,000 over the 23 years of the loan (nearly half its value at the time).