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How to save $17,000 on your mortgage
Aussies who are on older mortgages are being advised that simply switching to a better rate could see them pocket thousands of dollars over the life of a loan.
How to save $17,000 on your mortgage
Aussies who are on older mortgages are being advised that simply switching to a better rate could see them pocket thousands of dollars over the life of a loan.
A report collated by the Australian Competition and Consumer Commission (ACCC) found that, as at September 2020, borrowers with home loans between three and five years old paid on average about 58 basis points more than the average interest rate paid for new loans.
This is leaving a borrower with a $250,000 mortgage $1,400 a year worse off due to the higher cost of interest.
Over the remaining term of the loan, that borrower could save more than $17,000 in interest repayments by getting a better rate.
ACCC chair Rod Sims pointed out that there are a number of factors stopping borrowers from switching rates.
“A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so,” Mr Sims said.
The ACCC’s report highlights that many borrowers could save money by seeking a lower rate from their existing lender or switching to a new lender.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers, switching will be worth the effort,” said Mr Sims.
“Our recommended prompt would clearly set out for many borrowers just how much higher their interest rate is compared to new borrowers,” Mr Sims said. “This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender.
“It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector.”
As loans age, the gap between the rates paid on older loans compared with new loans widens. Borrowers with loans more than 10 years old were, on average, paying about 104 basis points more than the average interest rate paid for new loans.
“If you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates,” Mr Sims said.
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