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Homeowners pay $5k extra in interest on loan over three years unnecessarily

Homeowners pay $5k extra in interest on loan over three years unnecessarily

Sitting back and watching the interest rate rise on your home loan could be costing you hundreds of dollars more a month unnecessarily.

Homeowners are being warned not to fall victim to a “mortgage loyalty tax” by staying with their current lender as banks offer discounts and perks to compete for new customers.

Analysis by RateCity shows all four major banks are offering new customers a significantly lower variable rate than existing customers who have not “haggled” for something better.

The financial comparison site found someone who took out a variable rate loan in September 2019 could be paying an interest rate that’s almost a full percentage point higher than a new customer today.

Looking at Australia’s largest bank as an example, RateCity estimates a Commonwealth Bank customer who took out a $500,000 loan three years ago would have paid an extra $5101 in interest over that time if they had not negotiated.

For a $750,000 loan it is an extra $7,652 in interest and for a $1 million loan it is $10,202.

RateCity explained that in those three years, the bank offered discounts on its lowest variable rates five times to new customers, which meant unless an existing customer called up their bank and negotiated each time, they missed out 0.93 percentage points off their rate.

Addressing RateCity’s findings, Commonwealth Bank said in a statement it was committed to providing existing and new customers with “an array of great value and flexible home loan products”.

It highlighted its “Green Home Offer” where existing customers have access to a low standard variable rate if their home meets certain sustainability and energy efficient criteria.

“We encourage our customers to reach out to us to see how our extensive network of home lending specialists are able to help them find the right solution for their needs,” A CBA spokeswoman said.

The Reserve Bank of Australia increased the official cash rate by 0.50 per cent on Tuesday – the fourth hike in four months.

While the major banks have passed on the rate rises in full to existing customers, they are still offering discounts to bring in new business.

RateCity research director Sally Tindall said banks were “falling over themselves” to offer discounts and perks to borrowers willing to move from a competitor.

“Once the August hikes filter through, a competitive interest rate for owner-occupiers is likely to be around 3.50 per cent,” she said.

“If your variable rate starts with a 4 or even a 5, then you really should question why.”

RateCity found at least 10 lenders have cut variable rates since the hikes began, but only for new customers.

The value of refinanced loans surged by $1.06 billion to $18.16 billion in June, according to the Australian Bureau of Statistics. That is the highest value on record.

As well as rate hikes prompting mortgage customers to shop around, Ms Tindall said many borrowers would be coming off low fixed rate contracts they signed up for during Covid.

“Refinancing hit a record high in June and we expect this will keep on climbing as borrowers roll off their fixed loans, only to find rates have gone through the roof since they last looked at their mortgage,” she said.

“This will in turn push the banks to come up with even more discounts and perks for new customers, particularly refinancers looking to jump ship from a competitor.”

Customers also have the option to call up their bank and negotiate a better interest rate.

“If you do go down this path, do your research before you make the call,” Ms Tindall warned.

“Check what rate you’re on, check what rate your bank is offering new customers, but also what other lenders might be willing to offer you.

“If you have a couple of quotes at the ready for some of your bank’s competitors, they’re likely to take notice.”

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RBA interest rates: Westpac decreases fixed rates as three big banks pass on full 0.50 percentage point rate hike

RBA interest rates: Westpac decreases fixed rates as three big banks pass on full 0.50 percentage point rate hike

Westpac Bank has made a surprising move, choosing to spare some customers from escalating price hike pain.

The big bank has announced it will be decreasing its four-year owner occupied fixed interest rate by one per cent, down to 4.99.

Westpac is the third of the big banks to announce its rate changes following the Reserve Bank of Australia’s decision to increase the official cash rate by 0.50% per annum (pa) on Tuesday.

The big bank has unsurprisingly followed its rivals the Commonwealth Bank and ANZ in increasing its variable home loan interest rates.

The interest rate changes will come into effect for new and existing home loan variable rate products on Thursday, August 18.

Earlier today, ANZ joined CBA in announcing it will be passing on the hike to variable rate mortgages and one savings account by the full 0.50 percentage points.

The major bank said its up-scaled up mortgage rates will come into effect for both new and existing customers from Friday, August 12.

The lowest variable rate will now be increased to 3.69 per cent – ​​just under that of CBA, which pumped up its lowest rate to 3.79 per cent.

Both rates are at three-year highs.

The ANZ decision also included increasing the rate on its new ANZ Plus Save account by 0.50 percentage points to 2.50 per cent for balances up to $250,000, which will come into place on Monday.

The move came just hours after Australia’s biggest bank, the Commonwealth Bank, announced it will pass on the full 0.50 percentage point hike to its variable home loan customers and some savings customers.

CBA will bring its occupier principal and interest standard variable home loans rate to 5.8 per cent.

Uncharacteristically, Australia’s other big banks have been slow off the blocks following the RBA’s decision on Tuesday, with CBA’s competitors Westpac, NAB and ANZ yet to make their announcements.

Mortgage rates for new and existing customers at CBA will rise by 0.50 percentage points on August 12, with investor rates rising to 6.38 per cent.

Research director at RateCity.com.au Sally Tindall said while the CBA’s decision comes as no surprise, for customers who are already feeling the heat, this fourth hike is a “difficult pill to swallow”.

“From next week, CBA’s basic variable rate will hit a three-year high of 3.79 per cent – ​​a huge increase from three months ago when it was just 2.19 per cent,” she said.

For an owner-occupier with $500,000 debt and 25 years remaining, the 0.5 percentage point hike means they will see their monthly repayments rise by $140.

To ease the strain, Commonwealth Bank is cutting its lowest four-year fixed rate to 4.99 per cent – ​​a drop of 1.60 percentage points.

This special rate, which comes into play on Friday, is strictly for owner-occupiers paying principal and interest on a package rate ($395 annual fee) for a limited time.

While Ms Tindall said the “whopping cut” will make it the lowest in its category, she warned it may not necessarily be a good idea.

“People should think carefully about whether they want to lock up their mortgage for the next four years because there can be significant consequences if they decide to break their loan,” she said.

For those with a NetBank Saver account, who will see the full rate hike, the research director said an ongoing rate of just 0.85 still won’t cut it.

“In this market, where we could see ongoing rates over 3 per cent, these savers are still getting paid peanuts,” she said.

But Ms Tindall said there are signs things could be turning around.

“On Tuesday, Macquarie announced it was making significant cuts to its fixed rates and now CBA is following suit,” she said.

“We expect this will trigger further fixed rate cuts from other lenders in response to both evolving market expectations and competition among the banks.”

Read related topics:westpac

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Sydney couple build $1.2m property portfolio in just three months

Sydney couple build $1.2m property portfolio in just three months

A Sydney couple, who had been priced out of upgrading their family home, have managed to create a property portfolio worth $1.2 million in the space of just three months.

Amit Kumar and his wife Astha had bought a townhouse in the Sydney suburb of Quakers Hill for $610,000 six years ago.

Despite saving hard and their family home growing in value to $780,000, the couple who have two children aged three and five, discovered Sydney’s skyrocketing property market would mean it was impossible for them to find a new property in the city.
They had discussed the idea of ​​buying other homes but were nervous.

“It was the fear of the unknown,” Mr Kumar said. “You just don’t know what to do, you don’t want to overpay, you don’t want to buy the wrong place and then have it vacant for long periods and with no tenants,” he told news.com.au .

“You don’t know where the growth is going to be and you don’t know what the projects are in certain areas and things like that.”

But the couple met with a buyer’s agent and took the plunge in April, snapping up two properties in that month alone.

The first was in Adelaide in the southern suburb of Christie Downs, a three-bedroom, two-bathroom house.

They purchased it for $425,000 and it has already grown in value by approximately $60,000.

The second property was purchased in Toowoomba, Queensland – a three-bedroom house for $455,000, which has also jumped in value by $50,000.

“We were very nervous, particularly because they actually settled very close to each other… the settlement was two days apart,” he said.

“And also complicating things further was the Easter break and the Anzac Day long weekend happened as well, so it was all on short notice.

“I think at the time there was an election coming up, we didn’t know what the policies were going to be, we didn’t know what the interest rate was doing and how it’s going to affect us.”

But the gamble has paid off so far with Mr Kumar revealing they had 20 rental applications for the Adelaide house before the open home was even held.

“So we had a very large number of applications to actually choose from and we actually managed to get more than what we actually hoped to achieve in terms of rent,” he said.

“So when we bought the place, we were told $410 is a realistic expectation in terms of rent, but we actually ended up achieving $420.”

The Toowoomba home was already tenanted but Mr Kumar said it was at a significantly lower amount to the market rate.

They were told they would get $450 for the place, but after the previous tenant moved out, it was only empty for three days and then rented out for $470, he said.

Their latest buy has been in Bundaberg, a house for $387,000 snapped up in July, which is expected to rent out for $460.

All three properties were also bought sight unseen, Mr Kumar added, while the rents cover their mortgages.

The couple paid $65,000 to $70,000 for each place including stamp duty, using a 12 per cent “sweet spot” deposit recommended by their mortgage broker.

Mr Kumar, who works in sales, said the couple still plan to use their portfolio as a “stepping stone” to buy a bigger place in Sydney in the next 12 to 24 months, but they won’t stop there.

The 39-year-old never believed it would be possible to build a property portfolio but now the couple have a goal to buy eight to 10 properties in the next five to seven years.

He advised others to get into the property market as soon as they can, adding people shouldn’t be influenced by the market, but instead focus on the long-term goal of building value in their property.

“One of the things the buyer’s agent said to me and it’s just stuck out in my mind is that the earlier you buy, the sooner you buy, then the more time you’re allowing for capital growth and timing is not as critical as just getting into the market,” he said.

“Because if you buy the right property at the right price, timing is not such an important factor.

“All three properties that he’s bought for me, we’ve actually managed to get all of them under market value, so what it means is indirectly like even already now by the time we settle, we already have some equity.”

Read related topics:sydney

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