Feeling the home-loan pinch? Research by Digital Finance Analytics (DFA) reveals that almost 20 per cent of first-home owners - enticed to take on large mortgages a few years ago by an end to generous government concessions, record-low interest rates and more affordable house prices - are within months of default. And even those who have owned for longer or bought subsequent homes are struggling with big rises in living costs.
If this sounds like you, you need to make sure your lender is doing the right thing by you - after all, your mortgage repayments are probably putting the most pressure on your purse strings.
The best way to do this is to cite new information about the secret discounts and deals lenders are extending to some customers but not others.
SECURE THE BIGGEST DISCOUNT
If your loan is with a big bank and you’re paying the advertised interest rate, you’re being ripped off. It used to be that customers who knew to ask could secure 70 basis points off that rate, but in recent competitive times, that discount has leapt to as much as 100 basis points.
You won’t be able to get any reduction from one of the new breed of online lenders; it’s their cut-price rates that are forcing discounting elsewhere. But banks, and even some building societies and credit unions, will have wiggle room. The beauty of this information is that you could use it to make an instant saving with your lender, sparing you from having to remortgage.
Be warned, though: getting the full 1 per cent might require a genuine threat to leave. And even then, you may have to play the “I’m a long-term, loyal customer” card.
Given the ABS says more than a third of all housing loans written in the past year were refinances to a better deal, your current lender should do what it takes to keep your business. But if they don’t come to the party ...
GET THE BEST EXIT DEAL
Researchreveals just how much exit fees have fallen. You’ve probably heard that they’re now banned, but in reality that’s only on loans taken out since July 1, 2011. On all others, the only requirement is that they’re fair, which is, of course, a highly subjective concept.
(Incidentally, the fact these hidden fees, loaded into the premature end of a loan, are now outlawed makes loans easier to compare; comparison rates that capture all other fees now reflect the true cost.)
But once again, it’s only by playing hardball that people are securing wins.
A report by the Australian Securities and Investments Commission found that more than 50 per cent of people who complained about an early-termination fee saw it reduced or waived. However, the survey of 20 lenders found fees were still levied in 75,000 cases between July 1, 2010, and February 15 last year.
So it’s the knowledge of the deals banks are doing that will save you.
SEEK HELP TO AVOID DEFAULT
Of course, fixing a potential mortgage mess means regaining control of your finances, and doing a budget is the - albeit boring - best place to start.
But half of the first-home owners surveyed by DFA had no clear fix on how their income and outgoings related. This, when the average loan size is twice what it was in 2005.
First-time buyers are also the most likely to have to resort to meeting expenses by using their credit card.
A budget will logically highlight where, beyond your mortgage rate, you can cut costs, and the next easiest place will be your “fixed” costs, such as utilities (especially electricity) and insurance. By ditching an old provider for a new one, you’ll be eligible for all sorts of financial sweeteners. But if you still struggle to meet your repayments after this process, you need to tell your lender.
“No way - keep it quiet for as long as possible,” I hear you say, and I understand that rationale. But you also have to realise that your lender doesn’t want you to default. They’ll lose all that lovely interest you’ve signed up to pay, and if the situation becomes so drastic that they sell your house from under you, the price they’ll fetch will be paltry.
The lenders will help you - with revised repayment schedules, spreading them over a fresh 25 or 30 years, and even with interest-rate discounts - because it’s in their interests to do so. What’s more, they made a commitment to the government during the GFC to go easy on borrowers in distress. And today, they’re under more political and public scrutiny than ever.