Private Property Issue #95 - Interest rate discount

Whenever I go on Facebook, I see people posting screenshots of their interest rates. They ask, “Are these good rates?”

While the bank may advertise a 7% (ish) interest rate, you can always ask for a discount.

So you might wonder: “How much discount can I get?”

Let’s look at the data.

How much of a discount can I get off my interest rate?

I’ve dug through the rates my brokers at Opes Mortgages got for clients over the last week.

The biggest discount our brokers could get was 0.75%.

This was a 5-year rate that went from 7.34% down to 6.59%.

But not all rates get a discount. Some have none at all.

The average 1-year interest rate advertised by the 6 big banks is 7.37%.

But last week, our brokers got this down to 6.94% (on average).

A 0.43% discount.

On a $500k mortgage, that saves you $2,150 a year. That’s $41 a week.

It’s a different story for the 2-year interest rate:

The average advertised rate is 6.86%, but the average discount is just 0.06%.

That’s the equivalent of $6 a week on a $500k mortgage.

Where are the biggest discounts?

The banks are discounting the 1-year and 6-month rates most heavily.

Then comes the 18-month, the 4-year, and the 5-year.

The smallest discounts are on the 2 and 3-year rates.

Why do some interest rates get bigger discounts?

Most banks decreased their 2 and year 3-year rates about a month ago.

Since they recently lowered the rate, they’re unwilling to give as much discount. Makes sense.

But most banks haven’t changed their 1-year rates for 3 months. So they’re more willing to give a discount.

In today’s market … the longer a bank has kept its interest rate steady, the more room there is for a discount.

However, it’s hard to find this information online.

So Ed (our economist) created this page to show you can see when each bank last updated their interest rates.

Why offer a discount – why don’t the banks just drop the rates?

Some brokers say that Adrian Orr wants banks to keep their rates high.

That’s not my take. I don’t think the Reserve Bank governor is waving a big stick at the banks.

Wholesale rates are on the way down.

It costs the banks less to borrow money and lend it to us for a mortgage. So, their margins are increasing.

But, the market is uncertain. We don’t know when the Reserve Bank will start bringing the OCR down.

And there are costs when the banks change their interest rates. They need to launch new campaigns and update their marketing.

They don’t want to drop the 1-year rate today only to increase it next week.

So, the banks are holding off until the picture becomes clear.

It’s cheaper and easier for the banks to offer a discount before making a move.

But my mortgage broker didn’t get me those rates!

If you got a mortgage a month (or two) ago, you might think, "Hang on, my mortgage broker didn’t get me these big discounts.”

Interest rates (and their discounts) change day to day.

So, these are the discounts my brokers could get last week. But that doesn’t mean they were available a month or two ago.

Similarly, they might not be available in a month or two.

So don’t walk into the bank and say, “Andrew Nicol says I can get 0.43% off the advertised 1-year rate … where’s my discount?” ... It doesn’t work that way.

Instead, use this to get a general idea about what discounts are happening.

If you need a (good) mortgage broker, give my team at Opes Mortgages a ring.