Interest rates: How complacency can cost you $450 a month
INTEREST rates are climbing as banks go it alone with rate rises. However, digging a little deeper into your mortgage could save you thousands. Here’s how to get a better deal.
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SURPRISE interest rate rises by mortgage lenders will delay official Reserve Bank of Australia rate rises and prompt borrowers to shake off the complacency that is costing some of them more than $450 a month.
Ahead of the RBA’s expected decision to keep its cash rate on hold on Tuesday, mortgage specialists said last week’s rate rises by Westpac and other lenders could easily be offset out by people getting a better deal on their home loan.
Some borrowers are missing out on more than $5000 a year, and others risk financial problems when rates rise.
There has been a surge in sweeteners to attract new borrowers while existing customers miss out, said Kirsty Lamont, director of comparison website Mozo.
MORE: How much money Westpac’s rate rise will rake in
“Many borrowers are in a set and forget phase with their mortgage, and with rates at record lows haven’t given it much thought,” she said.
“Many lenders have been sneakily increasing rates to existing borrowers while dropping rates on offers to new borrowers. It may just be an addendum on your monthly home loan statement and that can be easy to miss.”
Mozo has noticed a “mini boom in cashbacks” in recent months, with some major lenders offering $1000 bonuses to new customers who switch to them from an existing lender.
“The difference between the best and worst home loan rates on the market has been increasing this year,” Ms Lamont said. This difference now stands at 2.38 per cent, or more than $450 a month.
While those who switch can save plenty, research last month by Digital Finance Analytics found tougher new lending rules meant four in 10 households would now have difficulty refinancing.
AMP Capital chief economist Shane Oliver said it would probably be two years before the RBA increased official interest rates, and the latest bank rate rises were effectively a defacto cash rate rise.
The RBA focused more on the average mortgage interest rate borrowers were paying rather than its own cash rate, Dr Oliver said. “When a major bank moves, it’s something they have to allow for.”
Long periods of rate stability risked people getting complacent and wrong-footed, risking the entire economy, he said.
“They either take on too much or are too slow in paying down debts.”
Home Loan Experts managing director Otto Dargan said people should review their mortgage every two years. “Borrowers that stick with one lender for convenience tend to pay higher interest rates,” he said.
“There are still a lot of people who have not reviewed their loan in the last two years.”
Mr Dargan said different banks had low rates for different types of borrowers. “If you’re an investor but you have your mortgage with a bank that has good pricing for homeowners then you’re not getting the best deal possible,” he said.
“Uncertainty about the future means that nobody, not even the RBA, can predict the future of rates over the long term.”
HOW TO GET A BETTER MORTGAGE DEAL
• Check if better offers are available by researching online comparison sites or phoning lenders.
• Make sure you’re seen as a good customer, as tougher lending rules mean your household income and wealth is scrutinised by banks more than ever before.
• Armed with knowledge that you can do better elsewhere, contact your bank and demand a better interest rate.
• Threaten to switch if they don’t satisfy you, and be prepared to walk if another lender has a better offer — after factoring in switching costs.
• Don’t only consider the Big Four banks — smaller players such as non-bank lenders consistently offer the lowest interest rates.
• New lenders are eager for your business and will help you through the switching process.