Home loan loyalty doesn’t pay, says the RBA

Ceyda Erem

10 Feb 2020

redactor/hero-images/1365/home-loan-loyalty_content.jpg

When it comes to choosing a home loan, many Aussies take the ‘set it and forget it’ route, but according to recent data, that could be doing more harm than homeowners realise. 

New research from the Reserve Bank of Australia (RBA) has revealed that Aussies with older variable rate home loans have higher interest rates than new loans - even when borrowers with the same characteristics were compared. 

The data found that these older loans on average had a rate that was 40 basis points higher than new loans. And according to the RBA’s calculations, for a loan with a balance of $250,000, that meant an extra $1,000 of interest payments every year. 

But the news wasn’t all bad, as the Reserve Bank said borrowers with an existing home loan now have the opportunity to get savvy and refinance to a better deal

“This means that existing borrowers who are able to refinance with another lender or negotiate a better deal with the existing lender can achieve interest rate savings,” the RBA said in its latest Statement on Monetary Policy. 

One reason the RBA believes variable rates have such wide ranges comes down to a borrower's credibility as well as different features offered with loans.

Competition stirred up by new borrowers entering the market as well as existing borrowers looking to refinance was also said to explain the vast difference. Rate discounting was one of the key ways banks compete for business on their advertised standard variable rates, with some banks offering discounts of as much as 1.50% last year. 

RELATED: Australia’s best refinance home loans for 2020

To find out whether refinancing could spell big bucks for borrowers, we decided to take our mortgage repayments calculator for a spin. 

Let’s say a borrower initially took out a loan for $400,000 with the average variable rate in the Mozo database of 3.71%^,  but decides to refinance their loan once their balance hits $250,000 after 18 years and 4 months. 

If they were to refinance to the lowest variable rate in the Mozo database, which belongs to Reduce Home Loans at 2.69% (2.70% comparison rate*), while still making their initial repayment amount, they’d save a massive $26,174 and shave 14 months off their loan term. 

“Gone are the days where big banks ruled the home loan market, Aussies can save themselves thousands of dollars by refinancing to another lender,” said Mozo Director, Kirsty Lamont. 

“Don’t get complacent, review your home loan and if it’s anything less than competitive, ring up your lender and ask for a better deal or better yet, take your business elsewhere.”

So if you’re ready to find out how much you could be saving on your home loan, head on over to Mozo’s refinance home loan comparison tool

^At the time of writing 

Compare refinance home loans - rates updated daily

  • Promoted

    UBank

    2.59% p.a.Apply now to get this rate from 3 Apr

    2.59% p.a.Apply now to get this rate from 3 Apr

    $1234

    Product details Close details
    UHomeLoan - Discount Offer

    Enjoy a super low rate, $0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year.^ Free redraw with flexible repayments. Min 20% deposit.

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • $0

    • 2.59% p.a.Apply now to get this rate from 3 Apr

    • 2.59% p.a.Apply now to get this rate from 3 Apr

    • $0

    • 80.00%

    • $200,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the UHomeLoan - Discount Offer

  • Promoted

    loans.com.au

    2.63% p.a.

    2.65% p.a.

    $1234

    Product details Close details
    Smart Home Loan 80

    A low-rate home loan that could save you thousands, with no ongoing fees plus unlimited extra repayments and free redraws. Mozo Experts Choice Low Cost Home Loan 2020.^ 20% deposit required. Limited time only.

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • $520

    • 2.63% p.a.

    • 2.65% p.a.

    • $520

    • 80.00%

    • $50,000

    • $1,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Smart Home Loan 80

  • Promoted

    HSBC

    2.65% p.a.

    2.66% p.a.

    $1234

    Product details Close details
    Discounted Home Value Loan

    No ongoing fees. Free extra repayments and online redraw. Mozo Experts Choice Split Home Loan 2020^

    • $0.00

    • $300.00

    • yes - free

    • yes - free online

    • no

    • $150

    • 2.65% p.a.

    • 2.66% p.a.

    • $150

    • 80.00%

    • $50,000

    • $7,500,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Discounted Home Value Loan

  • Promoted

    Reduce Home Loans

    p.a.

    2.64% p.a.

    $1234

    Product details Close details
    Home Owners Dream 3 Year Fixed 90%

    • $0.00

    • $0.00

    • yes - free up to $20,000 p.a

    • no

    • Optional - $10/month

    • $525

    • p.a.

    • 2.64% p.a.

    • $525

    • 90.00%

    • $50,000

    • $3,500,000

    • Fixed

    • Principal & Interest

    • Owner Occupier

    • Fortnightly, Monthly

    Read our Mozo Review to learn more about the Home Owners Dream 3 Year Fixed 90%

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for the amount and term you entered.

**Initial monthly repayment figures are estimates only, based on the advertised rate, and a loan of $500,000 repaid over 25 years. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

Mozo may receive advertising fees from the financial institutions, issuers of financial or credit products and third party advice providers that are shown on this page. These fees are based on a cost per click, cost per acquisition, or a fixed fee.