Staying loyal to your lender could be costing you
Homeowners who have not made any changes to their current home loans since the Reserve Bank commenced raising interest rates could be missing out on potential savings.
While you may think that your loyalty to your lender will be rewarded, a recent 2022 analysis of the Australian mortgage market revealed the opposite. This analysis found that Australian lenders are charging a loyalty tax to existing customers, which could be costing you thousands of dollars over the life of your loan.
How does staying loyal to your lender cost you money?
Lenders often try to attract new customers by offering them more competitive and lower rates compared to what existing customers are paying for their mortgage products. However, this can mean that current customers are actually paying higher rates than new borrowers.
Borrowers are paying more than they need to, either due to a lack of awareness or lack of concern as banks continue to attract new customers by charging more competitive and lower rates compared to what existing customers are paying.
The mortgage analysis found that banks are offering new customers rates that are 0.86% lower than the rates charged to existing customers. Borrowers with big four banks are facing an even higher loyalty tax with interest rates that are higher 0.91% compared to the rates offered to new borrowers.
To demonstrate what this difference could look like, a 0.91% difference on a $500,000 loan would result in the borrower paying an additional $70,000 over the life of their loan.
Using this to your advantage.
Interest rate rises are being passed on consistently by lenders, so it is important for people to know that they can avoid unnecessary mortgage stress from increases to their monthly repayments.
Homeowners who refinance today and save on their ‘loyalty tax’ could potentially reclaim the last two Reserve Bank rate increases and tens of thousands of dollars over the life of their mortgage.
This data shows borrowers should be actively managing their loan and seeking a better deal by reaching out to their broker and assessing their options.
We are here to help
If you have been with your lender for a few years, chances are you are already paying a loyalty tax.
Get in touch with us today to ensure you are not overpaying in interest.
Until next month when the Christmas season will be upon us.
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 2.85 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 2.75 per cent.
As is the case in most countries, inflation in Australia is too high. Over the year to September, the CPI inflation rate was 7.3 per cent, the highest it has been in more than three decades. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.