December 6, 2010
Some smaller lenders are rewarding loyal borrowers by offering substantial discounts on their home loans after a period of time, but while these may seem attractive are you really better off?
According to RateCity, some smaller lenders have been pushing harder to keep their home loan customers by offering loyalty discounts of up to 0.75 percentage points off variable interest rates.
More lenders now offering discounts
Six out of more than 100 lenders monitored by RateCity are reducing their variable rates on some of their home loans once the loan reaches a certain period of time, and then stays that rate for the remainder of the term.
All six lenders, including State Custodians Mortgage Company, Credit Union Australia (CUA), Bankwest and HSBC currently offer discounted rates for loyalty home loans. That’s five more lenders compared to 12 months ago when only one, State Custodians, offered a loyalty discount mortgage.
RateCity’s CEO, Damian Smith, says smaller institutions are rewarding customers with home loans for not switching to other lenders.
“The crackdown on excessive early exit fees and the rise of interest rates is likely to encourage more borrowers to compare their home loans for a better deal. So these lenders have taken on clever marketing campaigns to try and hold onto their customers for longer,” Smith says.
“Interest rates that reduce over time via a higher discount are an effective alternative to exit fees, and can offer smaller institutions a real advantage in retaining customers.”
Are these the really the best rates?
While these loyalty discounts could be a great deal, it depends on the initial interest rate of the home loan. Most also specify that you have to have the loan for a certain amount of time before the discount actually kicks in. For instance State Custodians offers a 15 percentage point discount after five years of having your mortgage with them.
“Borrowers should also compare home loans online and look at the comparison rates as they take into account discounted rates and average it out over the life of the loan. You may find cheaper deals from day one as opposed to waiting five years for a discount,” Smith says.
If you are loyal you may be rewarded for sticking with your lender, just make sure you do all of your calculations and work out if it really is the best option for you. Also read the product disclosure statement (PDS) to understand all of the terms and conditions attached.