Loyalty is an admirable trait in many people, and it is normally something to strive for. Unfortunately, with bank and lending institutions loyalty is not always rewarded. Banks most often, are worried about their bottom line and profit, and can often disregard those of us who remain loyal.
Those with older mortgages are finding that the banks are charging them more interest over time with something called the ‘loyalty tax.’ This was confirmed by the Reserve Bank of Australia last year when they conducted a study and discovered that older mortgages were typically charged with more interest than newer ones. The RBA June 2021 figures showed that the average difference in home loan interest rates between older mortgages and newer ones was 0.46%. This means that if you had a loan of $400,000, that 0.46% over 30 years means that existing mortgages would pay an additional $37,462 in interest.
Banks will only offer their lowest rates to newer customers in order to win them over from the competition and hope that those with older mortgages aren’t paying enough attention. Naturally, this has left a lot people feeling ripped off.
The ACCC published a report in December 2020 with several recommendations to prevent this unfair practice, but nothing has really come of it. However, hope is not lost. As interest rates are at their lowest they’ve ever been, the power really is in borrowers now.
The RBA added: “Well-informed borrowers have been able to negotiate a larger discount with their existing lender, without the need to refinance their loan.” They can do this either themselves, or with the help of a broker (we know a couple of good ones ?)
There was talk a few weeks back that Australia’s house prices were finally dropping but it seems that, once again, the Australian property has defied predictions. Right now, people are borrowing amounts of money many more times than their annual income, which is fuelling property price rises. This means that people under 40 are now less likely to own a home than at any time since 1947. Ouch.
Residential property prices have risen 6.7% in the June quarter of 2021, the strongest quarterly growth since 2003. The average price of residential dwellings is now $835,700, up from $678,500 a year ago.
If you are struggling to purchase your first home or refinancing your current one contact us at It’s Simple Finance and we’ll see what we can do for you.