It may be an admirable trait in personal relationships, but in financial matters, loyalty can come at a cost.

Sticking with the same loan longer than three years can cost borrowers thousands, with competition to win business resulting in new customers paying lower rates than existing ones.

This so-called loyalty tax has become such a hot topic, the Australian Competition and Consumer Commission has recommended mortgage holders review their options regularly and consider switching to secure better terms. Now is a great time to follow that advice and get in touch.

Rush to reset

Homeowner refinancing has hit an all-time record in the past six months, and it’s easy to see why, with interest rates at long-term lows. But it’s not just fixed rates borrowers should have their eye on. Homeowners with variable rates need to check they aren’t unwittingly paying a loyalty tax too.

Reserve Bank figures show owner-occupiers who took out new variable loans in October 2021 paid, on average, 2.63 per cent interest, while those with existing variable loans paid rates around 0.37 per cent higher rates at 3 per cent.1 On a loan around $350,000, that’s potentially adding an extra $1,295 in interest each year.

As a customer there’s few things more galling than finding out someone who came to the party late has been given a bigger slice of cake than you. That’s why the most empowering thing you can do is to simply shop around, which is what I can do for you.

Annual review

Being financially savvy is about developing good habits, and one of the best for homeowners is to book an annual appointment to review your home loan arrangements.

The start of a new year is the perfect time to dive in. People usually have a little more headspace before the year really ramps up and finding savings can be a great cure for that summer spending hangover.

Speak to me to check how current variable rates compare, or perhaps it’s a good time to consider locking in a deal. Fixed rates have increased recently and speculation is mounting about a possible official interest rate rise in late 2022 or early in 2023.

More than interest only

Of course, refinancing isn’t always about interest rates alone, although they are a big part of the equation. It may be about building more flexibility into your loan with offset and redraw facilities, the ability to make additional repayments, or unlock equity for a renovation, a major purchase or holiday.

Some borrowers may even want to consider options such as splitting a home loan between both fixed and variable options.

It’s all about what your goals and priorities are right now, and we all know that can change unexpectedly year on year.

Broker insight

The home loan market has never been more competitive and we’re adding more lenders to our panel each year, with more loan products and features. It can be daunting, but it’s also where I can offer you an advantage in guiding you through what’s out there to meet your needs.

I can also help calculate how any potential savings stack up in the short and long term against any search and switch costs. It’s important to stay on top of rates and offerings in a fast-moving market. So, get in touch to arrange a quick check-up for your home loan.

1 Lenders’ Interest Rates, Reserve Bank of Australia (published monthly online: rba.gov.au/statistics/interest-rates/#lenders-rates-table)

Add it up

In December 2020, the Australian Competition and Consumer Commission released the final report of its Home Loan Price Inquiry, concluding people with older home loans were potentially paying thousands more in interest than new customers. And it’s not just about falling interest rates. Newer customers are often able to secure variable loans at lower rates than existing customers because of competition to secure business, the report found.

And the older the loan, the worse the disparity. In September 2020 (when the report was compiled), owner-occupiers signing new variable-rate loans were paying an average interest rate of 2.62 per cent, meanwhile:

  • Owner-occupiers with 3-5 year-old variable rate loans paid an average rate of 3.20 per cent.
  • Owner-occupiers with variable loans 5-10 years old were paying 3.33 per cent.
  • Owner-occupiers with a variable loan greater than 10 years old were on 3.66 per cent.

On an average loan balance of $350,000, those with older loans could save up to $3,640 a year in interest payments by switching. (See table below).

Little wonder one of the major recommendations of the inquiry was for lenders to send annual prompts to customers with loans older than three years to encourage them to review and consider refinancing. While lenders, perhaps understandably, haven’t run with the advice to encourage their clients to switch or push for a lower rate, I’m happy to help you regularly compare your deal to the current market.

Age of variable home loan at Sept 2020 New 3-5 yrs 5-10 yrs >10 yrs
Average interest rate at Sept 2020 2.62% 3.20% 3.33% 3.66%
Additional annual intrest paid on $350,000 loan $2,030 $2,485 $3,640

Source: ACCC Final Report: Home Loan Price Inquiry, December 2020

Source: Home loan price inquiry – final report, The Australian Competition and Consumer Commission, 5 December 2020. (accc.gov.au/publications/home-loan-price-inquiry-final-report)

The post Loyal to a fault appeared first on Affinitas Finance.

What our customers have to say:

Adam, Brisbane

I wish there were more people like Tanya out there. She is such a lovely person, she knows her industry and she can explain finance in terms that anyone can understand. She is very professional, and approachable. I have already recommended Tanya to a work colleague, and they purchased their new home also finding Tanya a breath of fresh air. Thanks again Tanya for your help, and I will always use your services for any other investment opportunities that may arise.

Adam, Brisbane

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No task was ever too great for you to handle. I found your service was extremely prompt and no query was ever too simple nor difficult for you to take on. Tanya, I felt as though I had trust in you from the very first phone call and you certainly met all of my expectations and more in a professional and friendly manner. Thank you.

Tanya, your interpersonal skills are second to none. Apart from being exceptionally savvy when it comes to your role, I found you incredibly approachable. Your happy disposition just made the whole experience of buying a property a joy. Thank you.

Rachel, Sunshine Coast

Pol, Brisbane

Your solution also took a lot more into consideration than just our home loan. You also answered all our many, many questions simply and quickly. You have an ability to explain intricate financial details in 'plain speak'. Your overall easy going personality and professionalism was refreshing along with honesty and frankness which was also appreciated.

Pol, Brisbane

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It's difficult to narrow down what impressed me most - you provide an excellent service. I think one of the greatest things was that you genuinely cared about the result. You worked so hard and so efficiently to ensure that I was able to move forward in the process of purchasing my first home.

Trish, Brisbane

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Considering the complexity of the loan we have applied for Tanya has left me with a sense of assurance that our best interests were always first and foremost. Her explanation of how the whole process works was always presented clearly and confidently. She was always prepared to answer any questions we put forward and never hesitated in incorporating her own personal experience in any of her responses. We will continue to keep in touch with Tanya and when next we require loan assistance, Tanya will be number one on our list.

Shayn, Brisbane

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Graham, Brisbane

Sally, Brisbane

All parts of the process were explained simply and clearly so that I could understand what was going on as I have never applied for a loan before so this was all new territory for me. Thanks for all your help Tanya we were so glad to have your help rather than having to deal with a bank directly; much more personal and caring service.

Sally, Brisbane

Jennifer, Brisbane

I really appreciate your flexibility to meet with me at my convenience, advice based on knowledge and experience, referrals to other products and services and general sense of 'relief' that my future financial state is in good hands.

The whole team is both professional and friendly - a great wealth of experience. The service greatly exceeded my expectations and I gladly recommend your services to others.

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David, Brisbane

All queries were promptly answered. Great staff correspondence, we were always able to access someone to raise concerns. We were impressed with the attention to details. Tanya really listens and takes notes of the type of people we are and what loan setup would suite us. The services you referred us to have impressed us as well. You are very approachable and never made us feel silly with our questions.

Knowing you & your team are looking after our lending needs gives us a peace of mind and has made the process almost stress free.

David, Brisbane

Brian, Sunshine Coast

Tanya has skilfully and successfully managed the complexities of refinancing our business and property affairs. This crucial and timely financial manoeuvre has involved a detailed assessment and understanding our current business operation and financial needs. In addition, Tanya has worked with us in planning our financial strategies.

Tanya has provided us with a high standard of service and advice that has saved our companies significant amounts of money and continues to expand our knowledge on how to operate in the new and ever changing banking environment so that it best suit our business and property portfolio's needs.

Brian, Sunshine Coast