‘Loyalty Tax’ is a hidden cost that mortgage holders who are blindly loyal to their bank could be paying, without even knowing it.
This misguided loyalty could be costing borrowers tens of thousands of dollars by needlessly accepting higher interest rates on their home loans, says a Queensland finance broker.
Borro™ Owner Cara Giovinazzo said long-term home loan customers were being hit with a loyalty tax by their lenders, who have been offering much lower rates to new customers, for the exact same home loan product.
“A lot of lenders are offering much lower rates for new customers than they are for their existing mortgage holders, despite consumers having years of loyalty with their bank,” she said.
“An Australian Competition and Consumer Commission (ACCC) mortgage price inquiry in 2018 estimated that an existing borrower with an average-sized mortgage could initially save up to $850 a year in interest if they were to pay the same interest rate as a new borrower.
“Despite record low official interest rates at the moment, nothing has changed. Some mortgage holders continue to be paying a much higher rate than what new customers are paying. After years of loyalty, this is how their lenders are treating them.
“We often see lenders offering new customers interest rates up to one percent lower than they are offering some of their long-term borrowers, which could end up costing tens of thousands of dollars over the life of their home loan.”
Ms Giovinazzo said mortgage holders need to be vigilant about their home loans, particularly with the economic uncertainty due to the ongoing COVID-19 pandemic.
“Don’t be complacent and just ‘set and forget’ as this can potentially cost you a lot of money,” she said.
“You need to be prepared to shop around to make sure you are getting the best terms possible.
“Good mortgage brokers will call their client’s banks on their behalf annually, to ensure they are still on a competitive rate. They have more bargaining power with lenders typically, than if a consumer went directly to the lender themselves. Consult a reputable and experienced mortgage broker to find the lowest interest rate that suits you and to ensure you will be continually looked after.”
Owner and Senior Finance Broker
p: 1300 1 borro™ m: 0409 463 850