At Finspo, our mission is to help Australians pay off their home loans faster. You might be surprised to know that sometimes all it takes is a little knowledge, a bit of a nudge and a few changes, to potentially make yourself $4,500 better off each year.
That’s the median amount we worked out that an Australian with a home loan could save.
A big part of saving that $4,500 has to do with something called the home loan ‘loyalty tax’.
Get this right and you could be significantly better off just by speaking to your existing lender. Easy as that.
Keep reading and you’ll see:
- What a ‘loyalty tax’ actually is.
- Why it’s costing you money.
- How you can stop paying it and potentially save $1,600 every year.
Loyalty isn’t always rewarded.
Here’s the thing. Loyal customers are paying lenders billions of dollars more than they need to, without realising it. That’s because some lenders give new customers a better interest rate than existing customers who have been quietly whittling away at their home loan for years.
The Reserve Bank of Australia found that “the difference in interest rates between new and outstanding variable-rate home loans increases with the age of the loan” and that “loans originated four or more years ago had an interest rate of around 40 basis points higher than new loans”2.
On the average Aussie home loan of $400,000 that difference comes to around $1,600 extra in interest repayments per year – that’s what you might be paying for loyalty to your lender.
It’s the extra amount you pay because your interest rate is higher than the rate your lender is giving to new customers.
How can that even happen?
It’s happening because like most of us, you’re not actively reviewing your home loan as often as you could be.
Even though you did the right thing and compared rates to get a good deal when you took out your loan, it was probably a while ago. Since then and without you realising it, the lenders (probably yours included) have made your home loan less competitive than it was. It’s just something that happens. When you’re busy with all the other stuff that’s going on in life, it’s hard to feel inspired about banking. No one nudges you to check. Besides, your loan repayments have probably come down as interest rates have been reducing, so you think you’re doing the right thing. And how do you compare interest rates offered by different lenders anyway? Are you comparing apples with apples or apples with… lemons?
So how do you know if you’re paying a ‘loyalty tax’?
- The first place to start is to find out what interest rate you’re paying your lender. Get the facts. Knowledge is power.
- Then think back to when you last talked to your lender about your rate. It’s quite possible you haven’t spoken to them since you took out the loan in the first place. That’s what usually happens. It just does. People have better things to do.
- Make sure you know what sort of loan you’re on. Is it a principal and Interest or is it an interest only loan on an investment property, for instance? You need to know this because some types of loans are charged higher interest rates than others. And once you know what loan you have, you can make sure you’re comparing it with the same type of loan.
- You’ll need to check the market to see what rates are currently being offered for loans like yours.
- And, if after you’ve done all that you’ve worked out that you could get a lower interest rate that could save you more, you’ll need to call or email your lender and tell them.
Or… we could do all that for you with Rate my Rate.
At Finspo we’ve developed an online tool called Rate my Rate that’s easy to use and completely free. It’s a great way for you to quickly see how your home loan rate stacks up and to research a range of other loans in the market.
Rate my Rate does the hard work for you, except of course the last bit about calling your lender and telling them what you want to do. You’ll still need to do that yourself.
Want to know if you’re on a good rate?
We’ll show you what people are paying for home loans like yours and how your rate compares. Then you can use Rate my Rate to research loans in the market, view current offers and understand the switching costs.
Rate my Rate is just one of the ways Finspo is helping Australians pay off their home loans faster.
You’ll find out all about us and the other handy online tools we’re developing right now at finspo.com.au. So take a look and get inspired about potentially being $4,500 better off every year.
All it takes is a little #finspo.
1Based on the median estimated total potential savings of a sample of Australians with a home loan, as per Finspo research. Potential savings across both home loan and other products held, and assumes that rates and balances remain unchanged. Potential savings will vary depending on individual circumstances.
2Source: RBA Statement on Monetary Policy – February 2020 – Box C “Do Borrowers with Older Mortgages Pay Higher Interest Rates?”
Things you need to know: Unless otherwise indicated, information is current as at publication. This information is general only and is not intended to include any recommendation or suggestion, or constitute any financial product advice or credit assistance about any of the products referred to in this document. Please consider whether this information is right for you before making any decisions and seek professional independent tax or financial advice. Conditions and fees may apply.
