Hi Nicole,
I've read with interest your columns in regards to mortgage rates. We currently have an investment property with the Commonwealth Bank of Australia at 4.59 per cent, which includes 0.9 per cent wealth fund discount, for which we pay $300 per year for the privilege. Investment properties appear to have percentage premiums on the 25-year loan. What's our approach to the bank looking for a reduction?
David, East Hills
Investment properties do indeed attract a premium, David, and CBA delivered you and all investors an unwelcome Christmas present: an additional 0.07 per cent hike. Many lenders passed on a similar increase.
![Big banks like the Commonwealth will give you a mortgage discount if you ask, but it's still better to refinance.](/web/20170129170115im_/http://www.smh.com.au/content/dam/images/g/t/y/w/c/i/image.related.articleLeadwide.620x349.gtywdg.png/1485479700129.jpg)
You see, regulator APRA two years ago sought to curb banks' exposure to investment mortgages by capping their increase, so investors have worn a succession of out-of-cycle rate rises designed to deter them. (Owner-occupiers look to be in the firing line too now, as money markets react to President Trump.)
But all is by no means lost. You need to know that recent mystery shopping by mozo.com.au has revealed the Big Four are giving maximum discounts off their advertised rates of not 0.9 percentage points but 1.45 percentage points.
You also need to know that, as opposed to your 4.66 per cent loan, you could get a deal way down at 3.79 per cent from an online outfit called Reduce Home Loans. This is the cheapest loan that can be interest-only (the preference for some investors who still have a home mortgage).
And on Monday you need to call CBA and (politely – no sense being rude) tell them these things. Be sure to mention you are thinking of leaving for said deal.
The very nice consultant will probably immediately offer you a fixed rate way cheaper than your variable one – CBA's currently doing two years at 4.19 per cent.
If you at all use an offset account with your loan, (which has the beautiful effect of cutting actual monthly repayments on interest-only loans) don't go for this; it only offsets at a rate of 1.5 per cent. Otherwise, with more unofficial hikes potentially coming, some investors will be mulling a fix. Just consider the steep break costs if for some reason you need to leave and that this is by no means the cheapest.
If it's a "no" from you, CBA will submit a so-called "pricing request" to see if there's wiggle room in your variable rate. I've heard of investors getting 1.2 per cent off. Granted 4.36 per cent is 0.057 above the best deal, but it saves roughly $900 in refinancing costs.
Bottom line though: you'll do far better with a refinance. The big banks can't compete.
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.