Finance guru Scott Pape has revealed a home loan hack that can save a mortgage holder $6,000 by putting banks ‘under the hammer’.
In a Barefoot Investor column on Sunday, Pape advises that swapping a home loan from one bank to another is a way to quickly shave big bucks off a mortgage because of generous sign-on bonuses plus better rates.
Pape’s advice was prompted by a reader writing in to ask if there was any penalty for switching banks to take up more enticing home loan deals.
‘After trying to negotiate down our rate with our lender last year, we decided it was time to switch to what was, at the time, the best variable rate we could find,’ the reader wrote.
Barefoot Investor Scott Pape has endorsed his readers’ tactics in swapping banks to get financial benefit
‘Fast-forward a year and there are far better rates ‘out there’, with many lenders offering enticing cash bribes.
‘So my question is: what’s stopping me from refinancing regularly … even yearly?
‘Is there a chance lenders might start rejecting my applications, leaving me in no-man’s land?’
Pape replied that he couldn’t see that happening.
He relayed the encouraging experience of another reader.
‘ANZ were offering new customers a $4,000 sign-on bonus (and a slightly better rate), so we switched,’ the reader wrote.
‘But then, a few weeks later, I saw that my original bank was offering $3,000 for new customers. Bang! Before you know it, I’m back with my original bank.
‘For about 1–2 hours of paperwork and a few phone calls and emails, we were able to pay $6,000 off our home loan (after fees!).’
Pape endorsed the money-saving effort and described it as a way to save ‘$6000 in one hour’.
‘Nice one!’ he wrote.
‘Last month the CEO of ANZ Bank said that the home loan market was the most competitive he’d ever seen, and some banking analysts are suggesting that the discounts and incentives new customers are getting offered at the moment are irrational.
‘Understand this: the banks aren’t flashing the cash to their loyal customers … only those who bother to switch.
‘So the only irrational thing you can do is not spend a few minutes putting your bank under the hammer this weekend.’
Pape has previously called on Aussies to refinance in his popular book, The Barefoot Investor.
Barefoot Investor Scott Pape is pictured with his wife
‘Here’s the deal: it costs your bank about $1000 in marketing costs to replace you (and about six times that amount if you come via a mortgage broker they pay kickbacks to). That’s your negotiating power right there,’ he explained.
‘So, research the best deal on the market, call your bank and threaten to refinance with someone else if they don’t drop your rate.
‘Trust me, this works. I’ve had hundreds of people tell me they’ve used this strategy to get a better deal on their home loan, without the hassle of refinancing.
‘But, if the bank calls your bluff – don’t bitch, switch.’
Mortgage holders are struggling because of the relentless rise of interest rates over the past 13 months.
In that time the Reserve Bank of Australia has raised the cash rate to an 11-year high of 4.1 per cent.
This adds $97 to monthly repayments on a typical $600,000 mortgage and loan repayments have surged by 62 per cent in just 13 months.
With Reserve Bank Governor Philip Lowe indicating more rate hikes are likely because inflation is still too high, home lenders are set for yet more pain.
The Reserve Bank of Australia has hiked interest rates by another 25 basis points – marking the 12th increase in little more than a year