How to cut $5,000 in home loan interest in one year
The ACCC is urging consumers not to settle for the advertised headline variable rate when considering a new home loan.
The ACCC's Home Loan Price Inquiry interim report has revealed just how much of a discount is on offer to consumers when shopping for a new home loan. The report also urges consumers with an existing loan to compare your options at least every year to ensure you're getting the best deal.
New home loan customers can get big discounts
The ACCC's report looked at the home loan rates offered by the big four banks between January and October 2019. It found there was a big difference between the advertised variable headline rates and the rates that customers were actually paying for new loans.
The average discount for owner-occupier loans with principal and interest repayments with the big four banks was 128 basis points. However, some customers were receiving an even bigger discount and some were receiving no discount at all.
"As at 31 October 2019, around 13 per cent of the big four banks' customers received a discount of 150 basis points or more off the headline variable rate, while around 11 per cent received no discount off the headline variable rate," the report said.
"If a customer with no discount was able to obtain the average discount of 128 basis points, for example by asking their bank for a lower rate, refinancing to another home loan or switching lenders, this could result in interest savings of nearly $5,000 in the first year alone for an average sized new loan of $386,000."
If you're in the market for a new home loan, it's important to look for a competitive loan to begin with and then negotiate a discount on top of that. You could save yourself thousands of dollars in interest repayments by doing so.
Existing home loan customers can save by shopping around
The ACCC also found in its report that the difference in the variable home loan rate for new and existing customers was getting wider. This is because the big banks have started to offer even bigger discounts off the headline advertised rate to new customers, to remain competitive against smaller lenders.
"As at 30 September 2019, customers with new owner-occupier loans with principal and interest repayments were paying, on average, 26 basis points less than customers with existing loans," the report said.
"The difference between average interest rates paid by customers with new loans and customers with existing loans persists, in part, because price reductions for customers with existing loans are not always as large as discounts on new loans."
The ACCC said one reason for this is that the big banks were relying on customer inertia and laziness, knowing that many customers would simply accept a slightly higher rate instead of going to the effort of refinancing with another lender. However, this is costing them thousands of dollars over the life of their loan.
"By refinancing to a new loan or lender, customers with an existing loan become customers with a new loan, and may benefit from the larger discounts that may not otherwise be available on an existing loan. Some customers with an existing loan may need to switch to another home loan product with their lender, or switch to another lender, to get the best deal available to them."
If you haven't compared your home loan in a while, rates are at their lowest level in years making now a good time to refinance your mortgage.