Bank customers stung with loyalty tax
You'd be forgiven for thinking that your bank rewards you for your loyalty. And you wouldn't be alone. A survey of 1000 Australians has revealed that 70 per cent of people consider it important that lenders offer long-term customers the same rates or benefits as new customers. The survey also found that nine in 10 people would switch lenders if they found out they were paying a higher interest rate than new customers.
13 Aussie banks refusing rate cut
However, if you've had your home loan with the same lender for a few years, you could be getting charged a 'loyalty tax' – this is the difference between the rates lenders charge new customers compared to existing customers. And over the life of your loan, this can make a huge difference in the total amount of interest you pay.
Calculations from non-bank lender Athena Home Loans using data from the Reserve Bank show that keeping new customer rates for the life of a 25-year loan can mean significant savings for borrowers of up to $1428 per year, or as much as $35,713 across the life of the loan.
This figure is based on a $600,000 loan and the average interest rate difference between new and existing loans since September 2019.
This year, we've already seen the Reserve Bank deliver two cuts to the cash rate, and most lenders have responded by lowering their home loan interest rates. It's important to check what your bank has done, and to compare your interest rate against those being offered to new customers.
The survey also revealed that 13 per cent of borrowers go more than two years without reviewing their home loan. It's good practice to review your home loan once a year but you don't necessarily have to refinance to access a better rate. You might be able to negotiate a better rate with your existing lender just by asking. If the thought of that fills you with dread, a mortgage broker can negotiate on your behalf. And if your existing lender isn't willing to offer you a more competitive rate, your broker can do the legwork to help you refinance to a lender that will.
Anthony Waldron is Mortgage Choice CEO
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