Your bank made a retention offer. Here is how we checked it against the market
The moment you ask about leaving, most banks find a better rate. Sometimes that retention offer is genuinely the best deal available. Often it is just good enough to stop you looking.
The only way to know is to compare it properly: total cost over the period you expect to hold the loan, with every fee, feature and condition included.
A scenario from Grange
A homeowner in Grange had a loan in the $600,000 to $700,000 range with one of the major banks. Their rate had drifted well above what new customers were being offered. After a call to the bank, they were offered a discount that brought their rate down by a little under half a percent, valid immediately.
It sounded like a win. They asked us to check it before accepting.
What we looked at
A retention offer is a starting point, not an answer. We compared it against three other lenders who suited the client's situation, on these points:
- The rate after the discount, and whether the discount was tied to a package fee.
- Annual and ongoing fees. A lower rate with a $395 annual package can cost more than a slightly higher rate with no fee on a smaller balance.
- Offset account. The client held a healthy savings balance. An offset against the full balance was worth more to them than a few basis points.
- Switching costs. Discharge fees, government registration fees and any new lender application or valuation fees.
- Cashback. Useful, but only when the rate is also competitive. A cashback that comes with a higher rate is usually eroded within a couple of years.
- How long the retention rate lasts. Some retention discounts are not locked in and can drift back as the bank reprices.
The outcome
The retention offer was competitive on rate, but it came with a package fee and an offset limited to one account. Another lender had a rate slightly lower again, no annual fee and a full offset.
Over three years, the difference worked out to a few thousand dollars in the client's favour after switching costs were taken into account. Not life-changing, but real money, and the new loan was simpler.
It does not always go that way. In other cases we have recommended clients accept the retention offer because the gap was too small to justify the switching costs. That is the point of checking.
How to test your own retention offer
- Get it in writing. Note the rate, any fees, and whether it is a permanent discount or a temporary one.
- Compare total cost, not just the rate. A comparison rate helps, but it assumes a $150,000 loan over 25 years, which may not reflect your loan.
- Value your offset properly. If you keep $50,000 or more in savings, the offset arrangement can matter as much as the rate.
- Include switching costs. Most refinances cost somewhere in the hundreds of dollars once fees are added up. Some lenders cover part of it.
- Ask again in 12 months. Banks reprice regularly. A loan that was sharp a year ago can quietly drift.
Check where your loan sits
Our free Loan Health Check compares your current rate against what is available now. If your bank has made you an offer, send it through and we will test it against the market. We are based on Days Road in Grange.
Frequently Asked Questions
Should I accept my bank's retention offer?
Sometimes. It depends on whether the offer is competitive on total cost, including fees and features, compared with what other lenders will offer you.
Does a mortgage broker charge to review a retention offer?
At Fundfin, there is no cost to you for a loan review. Brokers are paid by the lender if a new loan settles.
How much does it cost to refinance?
Typically a discharge fee from your current lender, government registration fees, and sometimes application or valuation fees. Many lenders waive their own fees, and some offer cashback.
