What’s Your Bank Loyalty Worth?

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The better part of $5 billion a year. Well that’s how much existing customers who don't shop around are worth to the banks.

By not regularly checking the market, the 'lazy tax' ends up adding thousands of dollars to the average home loan.

Banks are prepared to discount interest rates for new customers, compared with what they charge their existing, loyal customers. And with record low interest rates, the discount has increased over the past couple of years.

The RBA's analysis of the securitisation numbers clearly shows how keen the banks are to attract new mortgages. The average outstanding loan is itself at a substantial discount to the advertised rates, but new loans – those taken out over the past three months – are more than 30 points cheaper again.

With about $1.6 trillion in mortgages outstanding, 30 points represents $4.8 billion a year.

At the Australian Securitisation Forum, Dr Kohler reported very few borrowers pay the standard variable rate. The single most common principle-and-interest rate is about 4.5 per cent, roughly in line with the banks' "package" rate. The next most-common rate begins with 3.9 – the 60-point difference is serious money over the life of a loan.

A stern reminder to those who have not checked their mortgage rate over the past year or two that they are paying the "lazy tax". By not regularly checking the market, the "lazy tax" ends up adding scores of thousands of dollars to the average home loan.

The bottom line is that, on average, Australian home owners end up paying about as much as the RBA wants us to pay for money. To make up the average though, people on higher incomes with bigger loans who shop around pay substantially less than trusting, loyal customers.

Find out how much you can save on your mortgage. Book an obligation free consultation with a Coronis Mortgage Broker today.

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