Nick Bruining: The magic loan-to-value number that could get you a super refinancing deal on your mortgage

Last week’s much-anticipated fall in the Reserve Bank’s official interest rate has now been passed on to almost all borrowers, without exception. The trick now is to reassess your own position to make sure you’re getting the full benefit of the reduction. That reassessment means more than just waiting for an email from your existing lender. If you are in a strong position, be ready to negotiate a new and better deal. The 0.25 percentage-point cut to the RBA’s overnight cash rate means a family with a $750,000, 25-year mortgage will collect a saving of about $115 on repayments a month to $4865. Canstar’s director of data insights Sally Tindall said the ongoing battle for market share in the home loan market meant the next few months could present a golden opportunity for those looking to refinance. “Borrowers across the country will be laser-focused on what their new variable mortgage rate will be, and ideally take the time to check what other lenders are offering,” Ms Tindall said. Independent mortgage broker Brian Hoareau said the deals on offer could go well beyond the RBA’s 25 basis-point reduction. “Lenders can and are going further than 0.25 per cent to attract new business,” Mr Hoareau said. Sites like Canstar list almost all Australian lenders, and not just those they have a commercial arrangement with. That allows you to compare your current rate with a range of alternatives. “Those and an independent mortgage broker with a large panel of potential lenders will allow you to work out if it’s worth chasing a better deal,” Mr Hoareau said. “Your simplest strategy, however, may be to contact your existing lender and see what they are prepared to do, but do your homework first. Go in with cold, hard facts, not just made-up numbers.” Next, make sure your credit record is accurate and hopefully unblemished. A significant expansion of the data collected on Australian borrowers was made in 2018, and while that provides a better picture of individual borrowers for potential lenders, it opens up the possibility for errors to creep in. Contact the largest credit reporting agencies such as Experian, Illion and Equifax and they will provide your credit report to you at no cost. You can then identify errors and set about correcting them. “It’s wise to get all that cleared up so that when you make an offer, or try to refinance, you don’t suddenly discover there’s an incorrect entry on your credit report, possibly killing off your chances of getting the loan approved in time,” Mr Hoareau said. Next, ensure your loan-to-valuation ratio — or LVR — is at least 20 per cent. Anything below 20 per cent means the lender will probably require a new lenders mortgage protection insurance policy. This is a lump-sum premium that can add up to thousands, completely removing the benefit of moving to a lower interest rate loan. LVRs essentially reflect how much skin you have in the game. If your property is worth $1 million, for example, and you have a $220,000 deposit, the LVR is 22 per cent. That means you are in a strong position to get a better deal. WA’s surging house prices almost guarantee updated valuations will put people who bought two or three years ago with a relatively small deposit on an LVR below 80 per cent — giving them that magic 20 per cent deposit. “Also be aware that if you have an even lower LVR, some lenders will have an even bigger discount off their published rates,” Mr Hoareau said. “Thirty per cent is one of the more common trigger levels for a better deal.” And while most families will breathe a sigh of relief and use the saved money to pay other household bills, others may have spare cash to play with. “If you’re in that position, great. Why not keep the repayments at the same level, knowing you’re probably knocking years off the life of the mortgage and saving thousands of dollars in interest?” Mr Hoareau said. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association