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Are you being stung by the loyalty tax?

Once upon a time you were rewarded for loyalty. But borrowers with older mortgages are typically paying a higher interest rate than customers on new loans, confirms the Reserve Bank of Australia (RBA).

The RBA’s study finds that the difference in interest rates between new and outstanding variable-rate home loans increases with the age of the loan.

For example, for loans written four years ago, borrowers are charged an average of 40 basis points higher interest than new loans.

“For a loan balance of $250,000, this difference implies an extra $1,000 of interest payments per year,” explains the RBA.

And for loans more than eight-years-old, on average, you pay about 60 basis points more than a new customer.

What’s driving the difference?

The RBA says the difference in rates between older and newer mortgages can be partially explained by a shift in the mix of different types of variable-rate mortgages over time.

“In particular, the share of interest-only and investor loans in new lending has declined noticeably in recent years and these tend to have higher interest rates than other loans,” the RBA says.

“Nevertheless, even within given types of mortgages, older mortgages still tend to have higher interest rates than new mortgages.”

Strong competition for new borrowers

Here’s the real kicker, though. With competition for borrowers intensifying over recent years, banks are offering large discounts on their standard variable rates (SVRs).

What’s an SVR? It’s the reference rate that a bank prices its variable-rate loans against.

Basically, it’s the interest rate that banks and media quote when they report whether or not a rate cut is being passed through to customers.

But, as the RBA points out, very few borrowers actually pay interest rates as high as the SVR.

Instead, most borrowers are on advertised rates that are “materially lower” than a lender’s SVR, or have negotiated a further discount – and those discounts are getting bigger and bigger each year.

“In recent years, the average discounts relative to SVRs offered by major banks on new variable-rate mortgages have grown, widening from around 100 basis points in 2015 to more than 150 basis points in 2019,” the RBA says.

“By increasing the discounts on rates for new or refinancing borrowers over time, rather than lowering SVRs, banks are able to compete for new borrowers without lowering the interest rates charged to existing borrowers.”

Time to renegotiate?

The discounts borrowers receive on loans are usually fixed over the life of the loan. However, the good news is that they can be renegotiated.

“Well-informed borrowers have been able to negotiate a larger discount with their existing lender, without the need to refinance their loan,” explains the RBA.

So, if you’d like to put yourself into the RBA’s “well-informed borrower” category, then get in touch with us today.

We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or looking around elsewhere.  MAKE us your business partner.  Whether you are buying property, business or equipment, MAKE Finance Group will provide the finance solutions and advice you need. Call us today on 02 6021 6600

We are here to help.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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As a full service finance broker, we can save you time and stress as we negotiate with Banks and Financiers on your behalf. Whether it is asset or equipment finance, business finance and advice or even a home loan, we will go to the market on your behalf and find the best possible deal available.

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The staff at MAKE Finance Group are experienced and dedicated to providing our clients with exceptional levels of advice and service.

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This ensures you receive the best offers with the objective of saving money and increasing profitability.

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Here is what a couple of our clients have said about MAKE Finance Group.
  • Geoff at MAKE Finance Group made the process of purchasing an investment property a seamless process. Thanks for your patience Geoff. I would highly recommend Geoff and his team at MAKE for all your finance needs. Cathy, Warrnambool

  • Geoff and the team at MAKE Finance were unbelievably helpful when we needed to refinance our business loan. After a stressful and confusing ordeal with our existing lender, Geoff made re-financing so easy, and it tool very little work from our end to sort everything out. We are so happy with everything sorted and not having to worry about our finance arrangements. We would encourage anyone with any financing needs to go and see Geoff and the team at MAKE Finance, thanks Geoff! Philip and Jenni, Holbrook

  • Thank you to the team at MAKE Finance Group, for helping me purchase my first truck. I cannot thank them enough as they went above and beyond all my expectations and made the whole process easy and stress free, I would highly recommend them to anyone. Rob, Canberra

  • Applying for a business loan (direct through a Bank) was becoming a stressful and difficult task for us as everything had to be discussed over the phone followed by numerous paperwork. Geoff at MAKE Finance Group was our savior. Your personalised service made the application for our business loan & business vehicle loan so easy. We now operate a very successful business & we could not have done this without you. We love your work! Lloyd & Kristy Franchisee of Jim’s Mowing Wodonga East

  • “MAKE Finance Group were an absolute pleasure to deal with. Right from the very beginning, even when we were just asking questions as to how home loans work and how much we could afford, they made the process incredibly easy and put everything into terms that we could understand. There’s a lot involved with buying your first home, but it felt effortless with the superb help from both Jess & Geoff. MAKE Finance Group definitely come highly recommend from us – thanks guys!” Sophie & Zach, Albury

  • “Buying a new car was a big deal for me as I had a very strong love for my only car of 10 years.  I approached MAKE Finance Group to help me source a loan for my new car, and they made me feel 100% positive about making the change, as the process that they followed to obtain the loan was flawless. They came to me which I hugely appreciated, everything was in order and all follow ups and questions were answered without hesitation. I cannot recommend them enough for their professional and friendly service.” Stephanie, Albury

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