Are you with one of the big four banks for your standard variable home loan? If you are, you could be paying an extra $700 more in interest per year. RateCity investigates how the big four banks measure up when it comes to your home loan.
March 6, 2010
Useful information is hard to come by, especially when it comes to personal matters such as your mortgage. There are so many different deals and options out there these days that make you wish you had an automatic filter to sort out the practical from the not so helpful.
But in a recent study of mortgage lenders, financial comparison website RateCity discovered some interesting findings when it comes to how much your mortgage really costs.
How do the major banks compare?
It found that the benchmark standard variable rate – which is the average of the major four banks (Commonwealth Bank (CBA), ANZ, NAB and Westpac) for residential mortgages is approximately 0.32 percent higher than smaller lenders.
The major four, which make up three quarters of the variable mortgage market, works out to be about 1.88 million households. For a typical loan size of $300,000 these households are potentially paying a combined total of $1.33 billion in extra interest charges, or $709 per year per household. Over the average mortgage term of 25 years that is $17,725 more.
Can you avoid the higher costs?
According to RateCity’s CEO Damian Smith, higher costs on your home loan can be preventable.
“The major four banks don’t need to keep a competitive standard variable home loan rate because they hold the majority of mortgage customers. Their position is to be competitive on basic home loan rates, where the major four are on par with other lenders.”
RateCity found that the top 20 residential mortgage lenders current average standard variable rate of 6.76 percent is 28 basis points higher in comparison to smaller lenders at 6.48 percent.
“If you have a standard variable rate with one of the top 20 lenders, you would be paying about $2,075 per month with a rate of 6.76 percent. But if you shopped around for a cheaper deal and chose an average standard variable rate by a smaller lender of about 6.48 percent, you could potentially save $53 per month or over $600 each year on interest charges.”
There are clear differences between lenders and thousands of dollars could potentially be saved, says Smith. “Customers need to compare all their options, and come equipped to any discussions with their branch manager with details of what they can get from another institution. More and more, we see that knowledge is power when it comes to negotiating a better deal.”
How to avoid the high cost trap
- Compare lenders online to find some of the lowest interest rates and features to suit your needs
- Don’t limit yourself to banks you know and trust, expand and look at smaller lenders as their rates may be lower
- Familiarise yourself with financial terms to better understand your mortgage which can save you money.