Australian homeowners will be very interested in the findings from the Australian Competition and Consumer Commission’s (ACCC) inquiry into home loan pricing. In a recent report, released by the Australian Government, the ACCC confirmed what homeowners have long suspected – that many Australian mortgage holders are paying more interest than they need to.
The ACCC’s investigation was first launched back in October 2019 and focused on the “set and forget” mindset that seems to be prevalent amongst Australian mortgage holders. The report highlighted just how important it was for homeowners to regularly reassess their home loans. Specifically, the ACCC report showed that mortgage holders with older home loans were often paying significantly more than borrowers who had recently taken out a mortgage or homeowners who had opted to refinance.
For example, the report showed that, as of September 2020, borrowers with a home loan that was 3-5 years old would on average be paying 58 basis points above the average interest rate being offered for new mortgages. The older the loan, the higher the discrepancy. Home loans that were 5-10 years old were paying 71 basis points more, while home loans that were over 10 years old were typically being charged 104 basis points more.
To put this in perspective, if you had a 10+-year-old mortgage worth $600,000, with an interest rate of 3.5% and 20 years remaining, refinancing to a new home loan product that was 100 basis points less would save you in excess of $70,000 over the life of the loan.
ACCC Chair Rod Sims summed up the report findings by saying “if you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates.”
Interestingly, the report also found that a lack of transparency in mortgage pricing made it difficult for many borrowers to accurately assess how much they would be paying with various mortgage lenders. Coupled with the difficulties mortgage holders typically encounter when they approach their lender about refinancing, it’s no wonder that many homeowners opt to stay with the same mortgage product far longer than they should.
This attitude was noted in the ACCC report, which stated that “the proportion of borrowers who stand to benefit from switching significantly exceeds the proportion of borrowers who say they intend to switch.”
In light of this, the regulatory board has made several recommendations that, if implemented, would make life easier for mortgage holders who wanted to refinance. These recommendations include the use of a standardized mortgage discharge form, clearer home loan pricing structures, and a requirement that lenders regularly prompt borrowers to reassess their home loan product.
“This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender,” said Mr Sims. “It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector.”
Regardless of whether these recommendations are implemented, it is possible to refinance your home loan minus the stress and red tape. By refinancing through an experienced broker, you’ll get an honest and accurate assessment of costs and you’ll have someone to handle all the paperwork for you. In return, you could gain real savings on your home loan. To find out more about refinancing, get in contact with Phil Verheijen and the team at Professional Lending Solutions.