John McGrath - Bank Loyalty Tax And Lower Rates Inspire Refinancing
Are you aware that your bank is probably charging you a higher interest rate than new customers?
The Federal Treasurer, Josh Frydenberg calls this the ‘loyalty tax’ and if you haven’t looked at your home loan lately, the odds are you’re paying it.
Catherine McFarlane, Acting General Manager of McGrath’s mortgage broking division, Oxygen Home Loans, says the typical loyalty tax paid by existing borrowers can be “upwards of 1 per cent”.
At a Glance:
- Long-term mortgage customers may be paying a loyalty tax with their bank.
- Loan rates have rallen due to two official cash rate cuts and increasing competition with non-bank lenders.
- Mortgage brokers have access to many lenders and know the criteria of each lender.
She says: “There can be little awareness of this unless borrowers are actively shopping around or reviewing their home loan with a mortgage broker. Lenders aren’t in the practice of contacting their clients in the interest of reducing their rates.”
On top of the loyalty tax, loan rates have fallen this year not only because of two official cash rate cuts by the RBA in March but also due to increasing competition as more non-bank lenders emerge.
Catherine says many borrowers discovered this during lockdown when they took the time to assess their budget and spending habits.
“In April and May this year, Oxygen Home Loans saw a 53 per cent increase in applications for refinancing compared to the same period last year.”
Many people perceive refinancing as too hard or costly.
So, let me ask you this. When was the last time your work paid you $6,000 to have a few conversations and fill in some paperwork?
That’s the sort of money that Oxygen clients are saving per year by refinancing now.
Mortgage brokers make refinancing easier and cashback offers of up to $3,000 from many lenders are covering the cost of switching for eligible borrowers.
So, what are you waiting for?
Here are some case studies of how Oxygen has helped clients save thousands through refinancing in recent months.
Oxygen Broker, Donna Beazley in Sydney’s Sutherland Shire.
“I helped an older couple in Miranda who were paying 3.35 per cent on their home loan, 4.93 per cent on a line of credit and 20.24 per cent on 3 credit cards," said Ms Beazley.
"We negotiated 2.79 per cent variable and 2.29 per cent fixed on the loans and got a $2,500 cashback.
"We also consolidated the credit card debt to create one easy monthly payment, which will help them pay off their debt and save them hundreds per month.”
Savings on loan: $6,000 per year + hundreds in credit card interest.
Oxygen Broker, Robert Morse on the Gold Coast.
“My clients were a family in Bonogin who wanted to access $80,000 in equity for renovations and get a better rate than 3.27 per cent," said Mr Mores.
"We moved most of their debt to a two year fixed loan at 2.29 per cent and the balance to a variable loan at 2.70 per cent.
"We increased their borrowings and still reduced their repayments.”
Savings on loan: $3,120 per year
Oxygen Broker, Brett Dickie in Sydney’s North West
“My clients were a family in Lidcombe who were considering buying an investment property," said Mr Dickie.
"They had been with their lender for seven years and were paying 3.56 per cent pa and 3.86 per cent across two loans.
"I switched them to a Big Four lender and a new rate of 2.78 per cent.”
Savings on loan: $4,000 per year
You can organise a refinance yourself, however in my view there are big advantages to using a quality mortgage broker.
Firstly, they have access to scores of lenders and can often negotiate even better rates than those advertised.
Secondly, they know the criteria of each lender, so they can easily identify which ones are more likely to approve you, which is important as failed applications can affect your credit score.
Finally, they’ll take care of the lion’s share of the paperwork and will guide you through the rest.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
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This article originally appeared in The Real Estate Conversation (July 13, 2020)