Mortgages are a big deal to lenders and RateCity investigates the growing competition between banks and non-banks to find how you can save $17,000 off your mortgage.
July 5, 2010
When it comes to comparing banks and non-banks there has always been competition for your mortgage, but RateCity’s recent study discovered non-bank lenders have upped the ante in the hopes of increasing their share of the home loan market against banks.
The study showed the average standard variable rate of 17 Australian banks was 30 basis points higher at 7.29 percent compared to the average standard variable rate of more than 100 non-banks, including building societies and credit unions at 6.99 percent. And since September 2009, this difference has been slowly increasing.
“Non-bank lenders are finding it easier to raise wholesale funding to support their home loan businesses than they did previously,” RateCity’s CEO Damian Smith said.
“Australian Prudential Regulation Authority recorded an 18 percent drop in non-bank lending for mortgages in the year to March 2010 ($2.7 billion) compared to the previous 12 months ($3.2 billion),” he said.
“So there’s genuine appetite from them to grow market share. This can mean the real possibility of big savings for borrowers if they shop around.”
How to spot the better mortgage deal
“Borrowers need to keep in mind that all lenders including banks offer better rates than their standard variable rates for different mortgages such as basic home loans, although they may come with fewer features and more conditions,” Smith said.
“This is where the bigger banks can sometimes be advantageous by offering discounts for packaging a mortgage with other financial products such as a credit card and transaction account, although many credit unions also offer package deals.”
Be aware that most lenders don’t advertise the fact that they may be willing to negotiate to keep you as a customer. By comparing mortgages online you can take this information to other lenders you are interest in and use this to negotiate a better deal and ask them to match or negotiate accordingly.
For example, the difference you can save between a 7.29 percent variable interest rate and 6.99 percent for a typical $300,000 mortgage is around $58 per month, approximately $700 a year or more than $17,000 over the 25-year term.
It’s important to note that this study only compared published standard variable rates as at a point in time. On different days, the difference in interest rates varies and therefore costs may well be different. It is also possible that individual banks or institutions may offer very different rates to individual borrowers which would again change the outcome of this research.
If you are in the market for a mortgage, compare online as there’s more to be saved by shopping around and negotiating with your lender regardless of their size.