Finance guru Scott Pape has unveiled a home loan hack that could save a mortgagee $6,000 by putting banks “under the hammer.”
In a Column Barefoot Investors on Sunday, Pape advises that switching a home loan from one bank to another is a way to quickly take a lot of money off a mortgage because of generous sign-up bonuses plus better rates.
Pape’s advice was prompted by a reader who wrote to ask if there was a penalty for switching banks to get more attractive home loan deals.
“After trying to lower our rate with our lender last year, we decided it was time to move to whatever was the best variable rate we could find at the time,” the reader wrote.
Barefoot investor Scott Pape endorses his readers’ tactic of switching banks to gain financial advantage
Fast-forward a year and there are much better rates ‘out there’, with many lenders offering tempting cash bribes.
So my question is, what’s stopping me from refinancing on a regular basis…even annually?
“Is there any chance that lenders will reject my applications and leave me in no man’s land?”
Pape replied that he couldn’t see that happening.
He related the encouraging experience of another reader.
“ANZ offered new customers a $4,000 sign-up bonus (and a slightly better rate), so we switched,” the reader wrote.
“But then a few weeks later, I saw my original bank was offering $3,000 for new customers. Pop! Before you know it, I’ll be back to my original couch.
“After about 1-2 hours of paperwork and a few phone calls and emails, we were able to pay off $6,000 on our home loan (net of fees!).”
Pape endorsed the money-saving effort, describing it as a way to save “$6,000 in one hour.”
‘Well done!’ He wrote.
Last month, ANZ Bank’s CEO said the home loan market was the most competitive he had ever seen, and some banking analysts suggest that the discounts and incentives offered to new customers at the moment are irrational.
“Understand this: the banks don’t pass the money on to their loyal customers… only those who make the effort to switch.
“So the only irrational thing you can do is not spend a few minutes this weekend putting your couch under the hammer.”
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 will cost your bank about $1,000 in marketing costs to replace you (and about six times as much if you come through a mortgage broker to whom they pay a bribe). That’s your bargaining power,’ he explained.
So research the best deal on the market, call your bank, and threaten to refinance with someone else if they don’t lower your rate.
Trust me, this works. I’ve heard 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 complain, just switch.”
Mortgage holders are struggling due to the relentless rise in interest rates over the past 13 months.
In that time, the Reserve Bank of Australia raised cash rates to an 11-year high of 4.1 percent.
This adds $97 to monthly payments on an average $600,000 mortgage and loan repayments are up 62 percent in just 13 months.
With Reserve Bank Governor Philip Lowe signaling that more rate hikes are likely because inflation is still too high, home lenders are poised for more pain.
The Reserve Bank of Australia has raised interest rates by a further 25 basis points – the 12th increase in just over a year