Mortgage rates have dropped to a record low but few Aussie homeowners have capitalised on the cheaper credit and continue to pay a higher loan rate than necessary.
New research revealed just 3 per cent of the country’s six million home loans switched in the past six months, despite a slew of interest rate cuts, leaving millions with a pricey “loyalty” or “lazy tax”. This meant the average homeowner (paying down the average home loan of $489,251) was missing out on savings of about $6775 per year, or about $200,000 over the life of their mortgage.
The average homeowner paid a variable rate of 4.55 per cent but could switch to a rate of just 2.49 per cent – the lowest rate currently on offer in the loan market, the Finder.com.au analysis showed. The analysis also revealed most homeowners had a fair degree of apathy when it came to their rate, despite admitting meeting mortgage repayments caused them considerable stress.
Just over half of Aussies did not know what they were paying in interest and had the same home loan for 7.2 years – during which rates dropped substantially. There were four rate cuts in just the last six months alone and the Reserve Bank is widely tipped to cut them again this week.
Finder.com.au insights manager Graham Cooke said Aussies needed to take advantage of the historic low-rate environment.
“Due to the global impact of coronavirus (COVID-19) and other economic factors, the Reserve Bank slashed the cash rate to a jaw-dropping low of 0.5 per cent this month. With the cost of borrowing so low, more homeowners need to jump on the switching bandwagon,” Mr Cooke said.
“Mortgage holders who aren’t paying a competitive rate could be paying a lazy tax bill to the tune of $200,000 so switching to a better loan is a no-brainer.”
Last month Reserve Bank of Australia governor Philip Lowe urged loyal home loan customers to “shop around”, pointing to data from regulator APRA showing owner occupiers who had mortgages longer than four years were paying much more than new home loan customers.
New customers were paying an average rate of 3.23 per cent, the regulator data showed.
Analysis from RateCity.com.au showed just a 0.41 per cent rate difference on a $400,000 home loan added up to $1634 extra in interest in the first year. Rate changes made even more difference on bigger mortgages.
RateCity research director Sally Tindall said homeowners were seldom rewarded for their loyalty.
“Although loyalty is an admirable trait, when it comes to your home loan, it often doesn’t pay off,” she said. “If you’re on variable rate and haven’t negotiated your home loan recently, there’s every chance you’re paying more than a new customer.
“Don’t put up with overpaying, call your bank and negotiate a better rate. If they refuse to budge, you can always take your business elsewhere, especially if you are on a variable rate.
“There are more than 30 lenders offering variable home loan rates below three per cent.”