The Reserve Bank of Australia has decided to keep interest rates as they are. These lower rates are attractive to those considering entering the housing market, especially when fixed interest rate options are available.

But this attractive rate is somewhat misleading.

Here are several factors to consider:

  1. All lenders factor a profit margin into their lending rates. Lending institutions like any businesses, have to make a profit.
  2. All lenders are in competition with one another. Any hint of collusion will be very quickly stomped on the Australian Competition and Consumers Commission.
  3. Lender profit margins (as the Big Four Banks recent profit announcements reveal) are ridiculously over-inflated.

It seems then that even though the interest rates offered by lenders are low, they are not as low as they could or should be.

Image: www.infoaut.org

Image: www.infoaut.org

Comparison website RateCity has found the recent rate war between major lenders has seen 169 individual rate cuts on loans since July. All these cuts averaged out to a general lessening of 0.31 per cent on an average loan.

At the same time the major lenders were announcing meteoric profits for the 2013-14 financial year. Which means borrowers can negotiate on interest rates.

The lenders have wriggle room and they quite obviously still want your business.

Negotiating a reduction on your loan pays big dividends. A 1 per cent reduction on a standard $300,000 loan equates to interest repayment savings of $2100 per year. A 1 per cent reduction on a  $500,000 loan saves just over $3,500 a year.

The recent competition amongst lenders shows they are still hungry for your business. It might be a struggle to switch providers because of fees, direct debits, and accounts. But as the numbers show – it’s worth it.

Most of all don’t just look at the banks for good loans. RateCity believes the banks have been losing market-share in the lending market. Other mortgage providers may be more accommodating in the fight for your business. Don’t be afraid to investigate and approach them. Then see if your lender will match or better them.

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