If given a chance to get a better rate, eight out of 10 Australians say they would consider switching banks for their home loans, so why don’t more of us do it?
For Jason and Karen Rout of Sydney’s Western Suburbs, and their two young children, switching to another lender had never crossed their minds. The pair has a $320,000 home loan repaid at a rate of 6.67 percent.
“We hadn’t thought about it,” Karen said.
Damian Smith, chief executive of RateCity, said switching a home loan isn’t trivial, but it is easier and cheaper than some players want you to believe.
“A home loan is a big deal and too many of us don’t look at it until it’s too late,” he said.
“You’ve actually got people who are hungry for your business.”
Mitchell Watson, analyst at financial research firm Canstar, says competition has never been so fierce in the home loans market.
“There’re over 115 lenders in the market, so who do you choose?” he said.
“If you are paying 7 percent or more on your home loan you are paying too much.”
Twenty years ago, 22 percent of all home loans settled were refinanced loans – in other words people switching to a new mortgage. A decade ago it was about the same at 23 percent, then five years ago it jumped; 30 percent of all loans signed were refinanced. Today, it’s over one-third.
“The hard part was contacting [the lenders]; they all had different lingo, some of them were rude, some I just didn’t understand what they were saying,” Karen said.
After narrowing down their choices, Karen and Jason spoke with three small lenders. After two weeks, the Routs moved their home loan from one of the big four lenders, where they paid 6.67 percent to online lender loans.com.au with a rate of 6.4 percent. They also reduced the term of their new loan to just over 20 years, rather than 30 years. As a result the long term savings are more than $100,000.
“Definitely give it a try. It’s worth the time and effort; so get on the computer and give it a try,” said Jason.
Shopping around and comparing home loans is not just a way to get ready to move to a new lender, though, according to Smith. It’s also a way of negotiating with your current lender.
“We consistently hear from contacts in the industry that within big four banks, managers often have discretion to substantially reduce the rate you’re paying if it’s clear you are ready to walk as a customer,” he said.
“That can only be a real threat (and not an idle one) if you’ve already compared offers and negotiated with other lenders.”