Your bank might give you the impression that you’re getting a good deal by sticking with them, but your loyalty could actually be costing you money.
Customers who stay with their childhood bank, or the same bank their parents use, could be losing thousands of dollars a year to unfavourable home loan interest rates. This is according to new data from online mortgage broking platform uno.
The Australian home loan market is fiercely competitive right now, and many customers stand to save by refinancing.
Failing to switch, failing to save
Almost a quarter of Aussies still hold their mortgage with the same bank they used as a child or their parents’ bank, the research shows. This adversity to switching could be adding tens of thousands of dollars to the lifetime cost of the loan.
These loyal owner-occupiers are paying 4.5% interest on average, compared to an average of 4.3% among customers who have moved to a different lender.
It’s a similar picture for investors; those who have never switched pay 4.8% interest on average, compared with 4.6% for those who have.
“A home loan is one of the biggest financial decisions most people will ever make so it’s important to review the entire landscape of options to ensure you’re getting the best deal,’’ said uno founder and CEO Vincent Turner.
“The start of the year is a good time to do anything financially related, you get time to think about the year ahead and you have plenty of time on your hands.”
Pick and choose
Mr Turner also cautioned against holding your home loan and savings account with the same bank. Usually customers can find better deals by taking out different products with multiple financial institutions.
According to uno, customers with a 30-year, $363,650, principal-and-interest home loan could save $1,176 a year by switching from a rate of 4.1% to 3.63%. Over the course of the loan, that’s a massive $35,000 reduction in interest.
Crackdowns on lending in 2017 have made things harder for consumers, meaning they face tighter restrictions and need to save larger deposits for their homes. Even so, there is no harm in considering your refinancing options to see if you could get a better deal.
With many people keen to make a fresh start at this time of year, Tribeca Financial’s CEO Ryan Watson says this may well mean switching banks.
“Unfortunately Australian banks don’t reward loyalty, as a rule they fall ‘out of love’ with their existing clients,” he said.
“Banks take existing clients for granted so the only way to get a competitive rate is to shop around. Banks only respect consumers who do their homework and push for a really competitive rate.”
Mr Turner said that in the current market with all-time low interest rates, owner occupiers should be aiming for an interest rate below 4%. Investors, depending on the size and type of their loan, should find a competitive rate in the low 4% range.
You might start your search for a more competitive home loan on an online comparison site, but a mortgage broker’s insider knowledge will help ensure you’re really getting the best deal.
If you have multiple loans eating into your finances, you might consider refinancing to consolidate everything into one product. Speak to your financial adviser to discuss this if you feel like your debt is getting out of hand.
- Home owners who have their home loan with their childhood bank or the bank their parents use pay on average 20 basis points more in interest than those who have switched lenders.
- Refinancing could save you tens of thousands of dollars over the life of your home loan.
- Shop around for the best savings offers too – you don’t need to use the same lender for your loans and savings.
- A mortgage broker can help you find the best deal on the market.