While the major banks have been plotting their interest rate hikes to reap an extra $1 billion per year from Australian homeowners, they have been earning record-breaking profits.
The numbers have been tallied and it’s official: the big four have earned a whopping $30 billion in combined annual cash profits, an increase of more than six per cent.
Meanwhile, their customers are being hit with rate increases of between 0.15 and 0.20 percentage points from next month as banks push the cost of new regulatory requirements onto homeowners.
(I won’t go into the regulatory requirements explanation here, as I have done this in earlier posts on my blog)
Normally the big banks dominate the marketplace in respect to pricing, with all the smaller lenders falling into line and struggling for the competitive edge. However, that is not the case right now. We presently have the widest gap I can ever recall between where the big banks are taking rates to, and what many of the smaller institutions have to offer.
I’ve been getting quite a few calls and emails over the last couple of weeks from unhappy clients of the major banks, and here are a couple of client stories I want to share with you so you can see what I mean:
1. High valued Westpac clients who have a special relationship manager looking after them. Were told by Westpac that they couldn’t offer any better deal on their $448,000 home loan, and their rate will be increasing to 4.70%pa in November. I’ve now got them a new lender at 3.99%pa on a basic loan with no ongoing fees which will save them $9,593 over just the next three years.
2. NAB clients with a home loan of $386,000 soon to be charged 4.80%pa from next month. I’ve now got them a new loan with an off-set account feature at 4.14%pa and they will no longer have to pay an annual package fee of $395. They stand to save $8,899 over the next three years. Oh, and the lender is going to also put $1,500 into their account after settlement to say thank you for doing business with them.
The smaller institutions really are well positioned to claw back market share from the majors.
However, I somehow get the feeling that the big banks aren’t too concerned about it, and here’s why.
Most of us don’t change banks, even when we should!
Why are we reluctant to move? If you’re loyal to your big bank and are okay with the latest rate hikes, and are perhaps a shareholder benefiting from the profits, then maybe you don’t need to read any further.
Or perhaps you don’t want to go through the paperwork, proving your identity all over again, proving your income, having your house revalued, setting up new accounts etc? I get that. And I do admit that with all the options out there it would be confusing and sounds like too much time consuming hard work.
However, here’s the thing: Are you wanting to choose procrastination, or the opportunity to save thousands of dollars in interest costs?
I can recall the former treasurer Wayne Swan railing against the big banks: “If you’re not happy with your bank, walk down the road and get a better deal.” He even abolished mortgage exit fees to make it easier for you.
The process of changing banks for a better deal certainly has become much easier these days thanks to the services of mortgage advisers/brokers. A mortgage adviser is an industry expert who has access to at least 25 lenders. They will show you what your potential savings are expected to be and will not recommend you refinance unless the rewards in doing so are significantly to your benefit.
If you weren’t already aware, by dealing with Smartline you don’t pay anything for our services and expertise because the lender you choose pays us a commission out of their money once the loan is settled. Everything is just easier and more convenient when you have someone doing all the paperwork for you.
So if you aren’t happy with what the big banks are up to, and feel you might be paying more interest than you need to, here are my recommended steps to follow:
1. Call your bank and tell them that you’re shopping around, and ask them “what is the best rate you can offer me to keep my business?” Quite often they will shave your rate just by asking. They certainly won’t come to you with an offer, so be pro-active and approach them. (NOTE: this is only going to work if your loan is not on a fixed rate).
2. Do you have at least 20% equity in your home? In many cases, if you have to borrow more than 80% of the value of your home the Lenders Mortgage Insurance cost that you have to pay could erode much of the expected interest savings. However under these circumstances the viability of changing lenders can still be explored. If you are unsure of the value of your home, I can assist you with having that assessed too.
3. Make contact with me to have an obligation free chat so I can show you what opportunities may exist.
Yes there is some inconvenience in changing, however you may be surprised at how much money can be saved by refinancing your mortgage which can more than compensate you for the time involved.
So unless you’re going to stick with loyal or lazy, I’d love to hear from you.
Jason Thomson | Mortgage Adviser and Finance Broker | Smartline Cairns