The ACCC makes a compelling argument for borrowers not to sit on their hands and weather their current home loan rate, nor to wait until they are prompted to review their loan.
With over 100 home loan lenders offering a combined total of close to 4000 different products to choose from, it may seem to borrowers a daunting task to deal with either switching lenders or pushing a current lender to provide a better deal. But the numbers put forward in the ACCC’s Home Loan Price Enquiry Report, published in December 2020, should provide the fuel for borrowers to act now.
By December 2019, the ACCC found almost half of all variable rate home loans were already four years old. That was probably not such a bad situation in the past, but right now as we live in a world of ultra-low interest rates, there is a significant and widening gap between those ageing loans and what borrowers are paying now.
Old loans are costing borrowers significantly more than what new borrowers are paying.
If that doesn’t make you sit up and start thinking about your home loan cost, perhaps these examples from the ACCC will.
A borrower with a loan of between three and five years old is on average paying about 0.58 per cent interest above new loans; for a loan of five to 10 years old it’s about 0.71 per cent; and for a loan greater than 10 years old it’s about 1.04 per cent above the current rates.
“Many of those borrowers with older home loans could achieve significant savings if they switched to a new home loan,” the ACCC report states.
“For example, if a borrower with a home loan of around $250,000 switched to a home loan with an interest rate 0.58 per cent lower than their existing loan, they would save over $1400 in interest in the first year. Over the remaining term of the loan that borrower would save over $17,000 in interest in net present value terms.”
While the ACCC recommends lenders provide an annual prompt to variable rate borrowers with a loan of three years or older, providing them with comparative loan information available in the current market, why wait for that call-up?
There are plenty of home loans on the market, offered by shopfront banks and non-bank lenders, for rates below two per cent.
The rewards from taking control of your home loan finances now may the best decision you make in 2021.