Home loan interest rates higher for those showing the most loyalty

A dozen Reserve Bank interest rate rises since May 2022 have hurt borrowers, but some increase their pain through misguided loyalty.

Loyalty to banks and other mortgage lenders is costing Australians tens of thousands of dollars each, prompting a plea to seek better deals as home loan interest rates continue climbing.

The combined hit on household budgets from remaining with a higher-charging lender will be $8.9bn this year, according to a new analysis by mortgage broking giant Mortgage Choice.

Its research has found that almost nine out of 10 mortgage holders believe they should get the same interest rates and deals as new customers, but instead they are paying more – an extra 0.41 percentage points according to Reserve Bank of Australia data.

Mortgage Choice CEO Anthony Waldron said banks historically had charged higher rates “because existing customers are a little bit apathetic”.

“That is effectively being charged for your loyalty,” he said.

“I think that many customers actually don’t know, and that is even worse.”

Athena Home Loans CEO Nathan Walsh said people often underestimated how much it cost them to remain with a more expensive lender.

The cost of a higher interest rate adds up dramatically over time. Picture: iStock

“When you think about 0.41 per cent, 41 basis points, many consumers don’t realise what that means for a typical borrower – $40,000 over the life of the loan,” he said.

“That real money impact that it’s having on their budget is something that’s easy to miss.

“For a typical half a million dollar loan, that’s roughly $130 a month.”

Mortgage Choice and Athena have joined forces to develop new home loan products that ensure customer loyalty is rewarded.

Their Mortgage Choice Freedom products guarantee that existing customers will pay the same rate as new ones, and drop the interest rate automatically as people pay more off their mortgage and increase their home equity.

“There’s no other lender that drops their rate as you pay down your loan,” Mr Waldron said.

Separate research by comparison website Mozo.com.au found almost half of people who refinanced their mortgage did so for a lower rates, and 10 per cent said they switched because their existing lender would not give them the same rate offered to new customers.

Mozo spokeswoman Kylie Moss said borrowers should try to stay informed.

“Know your rate so that if you do see an advertised rate that is better than what you’re currently paying, you can act and approach your lender to match it,” she said.

“The good news is that some lenders are now recognising customer loyalty and have built automatic loyalty features into their home loans.

“Unloan, for instance, has an annual 0.01 per cent loyalty rate discount each year. Athena automatically drops its rate as a borrower’s loan-to-value ratio drops down a tier, as well as matching rates like-for-like for customers on existing loans to new customers.”

Ms Moss said there were a number of lenders offering lower interest rates to borrowers with more equity in their home.

“If your house price increases or you’ve paid off more principal, you could be eligible for a new LVR tier which could lower your rate and repayments,” she said.