When it comes to mortgage repayments, shop till they drop

Mortgage holders are being urged to shop around for a better interest rate to ensure they aren't getting lumped with a ‘loyalty tax’ for staying with their current lender.

Lenore and Stuart Pearson, at home in Baulkham Hills, Sydney, saved $280 a month by switching lenders. Picture: Jane Dempster

Mortgage holders are being urged to shop around for a better interest rate to ensure they aren't getting lumped with a “loyalty tax” for staying with their current lender.

The Reserve Bank of Australia’s decision to lift the cash rate 0.25 per cent on Tuesday marks the seventh consecutive month of increases to a cumulative 2.75 percentage points since May, adding $1079 to the monthly repayments on the average $750,000 loan.

Mortgage brokerage Lendi estimates lenders are, on average, charging their existing customers interest rates 0.86 per cent higher than the rates charged to new customers.

Chief executive David Hyman said shopping around could unlock funds in the family budget. “We know the majority of Australian mortgage holders remain either loyal to their current lender or passive about the interest rate increases,” he said. “More and more we are seeing how lenders aren’t providing value to their existing customers – and it’s costing them in the long run – we’re seeing numbers from $60,000 to $150,000 over the life of a loan, depending on your loan size.

“That’s around $250 to $500 every month this is costing mortgage holders – figures that can instead assist with the increasing cost-of-living pressures that are only expected to rise even further over the next six months.”

RBA governor Philip Lowe gave similar advice in early 2020.

In the northwest Sydney suburb of Baulkham Hills, Stuart, 45, and Lenore Pearson, 42, saved $280 a month by changing lenders, with their rate falling from 4.84 per cent to 4.29 per cent. The teacher and counsellor said the saving was huge for their family of five.

“I was expecting a rate rise, but I wasn't expecting to be hit month after month after month,” Ms Pearson said. “I was starting to stress out a lot more. So any little bit of savings just makes a huge difference.”

Mortgage Choice broker Terri Unwin said the number of incentives to change, or in some cases stick with a current lender, had increased over the past six months. “There is a number of banks offering cashback up to $4000,” she said.

The RBA on Tuesday acknowledged the full effect of increases had yet to be felt because of the high level of fixed rates in the market.