Ever fancied the idea of flushing money down the toilet? It sounds ridiculous, yet many Australians do something similar.
If you take out a mortgage and you automatically give your business to one of the big four banks, there’s a fair chance you could be part of the toilet-flushing crowd.
Imagine you were an owner-occupier paying principal and interest who wanted to take out a variable-rate loan of $360,000 to buy a $450,000 property (which would equate to a 20 per cent deposit). Here is what is currently on offer from the big four:
- Westpac Flexi First Option Home Loan @ 3.88% (comparison rate 4.47%)
- Commonwealth Bank Extra Variable Rate Home Loan @ 3.99% (4.00%)
- ANZ Simplicity PLUS Home Loan @ 4.03% (4.07%)
- NAB Base Variable Home Loan @ 4.17% (4.21%)
Yet as this mortgage comparison table shows, there are a range of lenders that offer lower-rate products. Examples include:
- HSBC Home Value Home Loan @ 3.65% (3.66%)
- UBank Value Loan @ 3.74% (3.74%)
- Bank Australia Basic Home Loan @ 3.74% (3.75%)
- SCU Basic Variable Rate Home Loan @ 3.77% (3.81%)
Save up to $38,631
Let’s compare the HSBC loan with the Westpac loan (which, by the way, is an introductory offer that reverts to 4.59 per cent after two years). If you had the HSBC loan, your monthly repayments would be $1,647 and your total repayments would be $592,868. With Westpac, your repayments would be $1,694 and $609,798.
That means you’d be paying an extra $47 per month and an extra $16,930 over the life of the loan.
If you took out the NAB loan, you’d be paying an extra $107 per month and an extra $38,631 in total.
It’s important to point out that the cheapest loan isn’t always the best. Also, everyone’s financial circumstances are unique, so for some borrowers the big four will be the best option. But given the amount of money on offer, it makes sense to at least consider using a challenger lender.
If there are a range of lenders undercutting the big four, why do three out of four mortgage borrowers continue to use the big four banks?
One reason is a feeling among some Australians that small banks, credit unions and non-bank lenders are risky. However, don’t forget that when it comes to any sort of loan, the party that takes the risk is the lender not the borrower. Also, smaller lenders have to follow the same set of regulations as the big banks.
Another reason people shy away from smaller lenders is a belief that the big banks provide better customer service. However, in the monthly Consumer Banking Satisfaction survey conducted by Roy Morgan Research, smaller lenders regularly outperform the big four. Indeed, in the most recent survey (August), all four of the big banks scored below-average satisfaction ratings.
A third reason borrowers can be wary of smaller lenders is because they may not have any nearby branches – or, indeed, any branches at all. If branch access is non-negotiable, do your research before ruling out a particular lender, because you might be surprised to discover just how many branches some smaller lenders have. It’s also worth mentioning that almost everything that used to be done in branches can now be done online or over the phone.