Mortgage confusion costing average borrower $850 per year

Mortgage confusion costing average borrower $850 per year

Australia’s biggest banks are deliberately confusing home loan customers and costing them hundreds of dollars per year, according to the competition regulator.

The Australian Competition & Consumer Commission (ACCC) said the “opaque, discretionary pricing of residential mortgages by banks” makes it hard for people to shop around and “stifles price competition”.

The ACCC, which was commenting on the final report from its Residential Mortgage Price Inquiry, also said the “unnecessarily high search costs or effort required by borrowers to find better prices reduces their willingness to shop around”.

It comes after the ACCC monitored the mortgage interest rates charged by ANZ, Commonwealth Bank, Macquarie Bank, NAB and Westpac between 9 May 2017 and 30 June 2018.

One of the inquiry’s findings was that many borrowers could get a “much better price” on their home loan if they negotiated with their lender.

“As at 30 June 2018, an existing borrower with an average-sized mortgage could initially save up to $850 a year in interest if they negotiated to pay the same interest rate as the average new borrower at the five banks under review. For many borrowers, the gain will be much larger,” according to the ACCC.

About 11 per cent of borrowers with variable-rate home loans had the price of their mortgage reduced by one of the five banks during the 2018 financial year.

Negotiate and shop around, says ACCC boss

ACCC chair Rod Sims said some borrowers may not realise they can negotiate on home loan interest rates, both before and after establishing their mortgage.

“I encourage more people to ask their lender whether they are getting the lowest possible interest rates for their residential mortgage and, as they do so, be ready to threaten to switch to another lender,” he said.

“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate.”

Mr Sims said the big banks benefit from the “opaque” process around setting home loan rates and that it is “against their interests to make pricing transparent”.

However, he expressed hope that the upcoming ‘open banking’ reforms would make it easier for consumers to compare interest rates and shop around.

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Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

What is a specialist lender?

Specialist lenders, also known as non-conforming lenders, are lenders that offer mortgages to ‘non-vanilla’ borrowers who struggle to get finance at mainstream banks.

That includes people with bad credit, as well as borrowers who are self-employed, in casual employment or are new to Australia.

Specialist lenders take a much more flexible approach to assessing mortgage applications than mainstream banks.

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How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

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We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.

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Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.