Thousands of dollars up for grabs as Aussie banks scramble for home loan business

Australian homeowners are being urged to push their banks for a better mortgage rate, with growing competition between lenders potentially putting thousands of dollars back into borrowers’ pockets.

A sharp decline in new home loan applications has left banks scrambling for business, with tax changes and falling house prices spooking some Australians out of the property market.

WATCH THE VIDEO ABOVE: Aussie homeowners gain bargaining power on mortgage rates

The slowdown is expected to increase pressure on lenders to offer more competitive rates as they fight to attract, and retain, mortgage customers.

Canstar Data Insights director Sally Tindall told Sunrise on Thursday borrowers should be aiming well below the current average owner-occupier variable rate of 6.25 per cent.

“Your mortgage rate should be a game of limbo. You want to go as low as possible,” Tindall said.

The lowest variable rate currently listed on Canstar’s database is 5.69 per cent, while 52 lenders are offering at least one variable rate below 6 per cent, including major bank Westpac.

Tindall said competitive mortgage rates should now “start with a five”, urging homeowners to negotiate with their lender rather than simply accepting their existing rate.

For a homeowner with $600,000 remaining on their mortgage and 25 years left on the loan, negotiating a 0.25 percentage point reduction could save about $92 a month, or almost $3,000 over two years.

Securing a 0.5 percentage point reduction would increase the savings to about $183 a month, adding up to almost $6,000 over two years.

The potential savings are even greater for borrowers who have not reviewed their mortgage for several years.

Homeowners who have stayed on the same loan for five years could be paying an estimated rate of about 6.97 per cent.

Refinancing to a rate below 6 per cent could potentially save those borrowers close to $11,000 over two years, even after allowing for more than $1,000 in switching costs.

However, Tindall warned homeowners to carefully check any fees associated with refinancing and make sure they are comparing loans with similar features.