Loyalty to your lender could be costing you thousands
41% of Australians feel trapped in their mortgage. But you're really not, and sticking with a lender who isn't loyal to you is a costly mistake.
Most of us can't avoid a mortgage debt, it's just a financial fact of life. But your choice of mortgage and lender is really up to you. Sticking with your lender, whether that's because you feel loyal or because switching seems too difficult, is costing you thousands.
Here are some fast facts on refinancing that might shock you into action:
REFINANCING IN 2019
Finder's Refinancing in 2019 series is presented by Athena's 3.09% variable rate (principal and interest, for owner-occupiers). Compare your home loan and save by refinancing with a lender where existing customers get the same new customer rates on like-for-like loans. Find out more.
- Almost half (46%) of Australians don't even know their current interest rate, according to a recent survey by Athena Home Loans.
- From the same survey, 35% of Australians feel they're being ripped off by their current lender.
- Over the last 12 months, only 199,900 Australians refinanced their mortgage (source: ABS), which is a tiny proportion of Australia's nearly 6 million residential mortages (source: APRA)
- Refinancing to a lower rate could save the average borrower $58,000.
Seriously, $58,000. That's a high price to pay for loyalty. If you need more convincing then here are three reasons why loyalty just doesn't pay:
If your lender is giving better rates to new customers
Once your lender has you on its books it's banking (quite literally) on you staying put and not paying much attention.
If you've held your current mortgage for even just a year or two, check your current interest rate and look at your lender's website. Is it offering a super low rate that says "new borrowers only"?
Here's the trick. Your lender offered you a decent rate two years ago but now it's offering someone else a better one. Data from the ACCC shows that existing customers typically pay 0.24% more in interest than new customers.
So your loan might be the same basic product as the new offer (for example, a variable rate owner occupier home loan with principal and interest repayments), but with higher rates. Call your lender and ask it to match your rate to its lowest comparable interest rate for your loan type.
If your lender won't budge then it's taking your loyalty for granted.
Athena's recent survey found 85% of borrowers would consider switching to a lender that guarantees to pass on to existing customers any new deals it gives to new customers.
But lenders don't do this. You have to check constantly to make sure you're not missing out. Right now, Athena Home Loans is the sole exception. Athena introduced a rate-match guarantee, which means current borrowers will always get the best available rate for their mortgage type automatically. No rate watching, emails or phone calls required.
If your lender doesn't reward your loyalty
Here's another mortgage secret most Australians don't know: you can negotiate your interest rate. There's nothing stopping you from asking your lender to lower its rate for you. The worst it can do is say no.
And if you've been with your lender for a while and it says no, then why stay loyal to a lender that isn't loyal to you?
For instance, Athena Home Loans actually rewards loyalty in its customers by shaving 0.01% off their rate every year of their mortgage for the first five years. That results in a 0.05% loyalty bonus after five years.
That's the kind of reward a smart borrower should be looking for.
There's always a better rate out there
And the last reason loyalty doesn't make sense is the simple fact there's usually a better deal out there. Rates are always changing and lenders are always looking to bring in new customers. As well as rates, you can potentially score a better deal for payments frequency or redraw, for instance.
With a bit of research it's easy to find a money-saving mortgage deal.
Are there any reasons to stick with your current lender?
Refinancing to a better home loan is usually the smart move, but there are a few situations where staying put might work better for you.
You're on a fixed rate and the break costs are high
Fixed rate home loans reduce your flexibility and if you try to leave a fixed rate loan before the fixed period ends there are break costs.
Break costs can set you back thousands of dollars, especially if you're at the start of the fixed rate period. If you're near the end of the period, these costs might be outweighed by greater savings that come with switching.
You can learn more about fixed rate break costs on this page.
You've got a package loan and you're using every product offered by the lender
Package home loans combine a mortgage with other financial products like a transaction account, credit card or insurance products, with discounts on each.
It's convenient to keep all your financial products in one place. But don't get complacent. Crunch the numbers and work out how much refinancing will save you. Those flashing dollar signs might convince you it's worth it.
You're happy with the convenience and service provided by the lender
If you really do value convenience and you're happy with your current lender's service then you might decide switching isn't worth it. Maybe you like your lender's app and you just don't want to switch.
It's up to you, of course. But don't pay a loyalty tax for nothing. And as we're about to show you, switching lenders really isn't as hard as you think.
So what should I do now?
Australians just aren't big on refinancing. Athena's research shows 41% of borrowers feel trapped in their current loan. In a recent Finder survey only 11% of respondents said they were planning to refinance their mortgage in 2019.
But switching mortgages doesn't have to be hard. Here's what you need to do:
- Compare home loans. Look for a mortgage with a lower comparison rate and features you need.
- Calculate your savings. Work out your switching costs, including fees and exit fees from your current loan. Make sure you're really getting a better deal.
- Apply for the new home loan. You will need to collect all the documents for your application, identification (driver's licence, passport) and financial documents (bank statements, pay slips). Your lender will conduct a valuation on your property.
- Leave your current lender. Notify your lender and discharge your mortgage. The new lender will handle the rest.
Disclaimer: This advice is general and does not take into account your objectives, financial situation or needs. Before applying for any products mentioned, please read the product terms and conditions and consider whether that product is right for you.
REFINANCING IN 2019: THE SERIES
Avoid unnecessary fees, get a low interest rate and use flexible features to maximise your mortgage repayments. Read more…
- Digital bank 86 400 launches fast digital mortgages with help from brokers
- Australian property prices can actually rise during a recession
- The tax rules you need to know before listing your property on Airbnb
- Fintech will give us more data about our properties and help us make better purchases
- Government orders ACCC inquiry into mortgage rates