There’s a common misconception that big banks reward loyalty in the former of better home loans or lower rates. Sadly, that’s rarely the case.
Big banks tend to take existing mortgage customers for granted because they assume those customers can’t be bothered refinancing to another provider. Conversely, they tend to offer better deals to new customers, because they know they need to provide an incentive to make them switch.
The problem’s so bad, the Treasurer directed the Australian Competition and Consumer Commission (ACCC) to look into it in 2019.
The ACCC examined home loan prices changed by the big four banks between 1 January 2019 and 31 October 2019, and found:
- Long-term customers were paying interest rates on average 0.26 percentage points higher than new customers
- The difference was ‘even more significant’ on loans more than five years old, with the average interest rates 0.40 percentage points higher than those offered to new customers
While those numbers might not sound like much, small differences in the interest rate you get charged make a huge difference over the life of a loan.
To see how much, let’s imagine you’re borrowing $600,000 over 25 years:
- Get charged 3.02% per annum (the Reserve Bank of Australia’s average owner-occupier interest rate in January 2021) and you’ll pay $212,878 in total interest over the loan’s term
- Get charged 2.17% per annum (2.20% comparison rate with a Well Balanced Variable loan at time of writing in may 2021) and you’ll pay $148,269 in total interest – a massive $64,609 less.
So switching to a lower rate can save you tens of thousands of dollars.
While it might be unfair, price discrimination is not illegal. But that doesn’t mean there’s nothing you can do about it.
How to avoid being taking for granted
If it’s been a while since you took out your existing home loan, there’s a good chance you’re being overcharged. And the best way to put an end to that is by shopping around and negotiating with your existing lender.
- Go to your bank’s website and see if the bank is offering lower rates and/or lower fees to new customers
- If they are, call up your bank and tell them to give you the same rates/fees new customers get – otherwise, you’ll refinance
Your bank will either agree or refuse. If they say no, refinance to a lender that offers you a better deal. If they say yes, great news – you’ve just saved yourself some money.
But the matter doesn’t have to end there.
Rather, keep doing your research and see if there’s a rival lender with a better deal. If there is, refinance – and save yourself an even more significant sum!
At Well Money, our award-winning mortgages include the kind of features you’d expect from a bank but at the low rates of an online lender. So you could save thousands of dollars over the life of your loan by switching. Find out more here.