In the world of personal finance, loyalty doesn’t always pay off – in fact, it can be quite costly. This is a lesson that many Australians are learning the hard way, especially when it comes to their mortgages. But before you resign yourself to the idea that your bank is your lifelong financial partner, let me share with you a story that might just change your perspective.
Meet Jill and Jonah, a couple of young executives from Sydney. They’re the owners of a home with a hefty $1.1 million mortgage hanging over their heads. With a young family to care for and demanding careers, they had little time to spare for financial management. Like many of us, they assumed that the interest rate on their mortgage was reasonable, based on the occasional advertisement they saw. They hadn’t reviewed their mortgage since its inception, and why would they? They were busy, and everything seemed to be ticking along just fine.
However, upon closer examination with the help of a mortgage broker, Jill and Jonah discovered they were, in fact, ‘burning cash’. They were victims of what’s known in the industry as the ‘loyalty tax’. This is the premium you pay for sticking with your bank out of convenience or habit, rather than shopping around for a better deal.
The couple found out they could save a whopping 0.85% on their mortgage rate, which translated to an annual saving of $9,350 – that’s nearly $800 a month they could now put to better use. This newfound cash could accelerate their mortgage payments, or boost their savings for other financial goals.
So, what’s the secret to avoiding the loyalty tax and keeping more money in your pocket? It’s simple: regularly review your mortgage and consider refinancing.
Refinancing your mortgage can seem daunting, but it’s a powerful tool for financial management. Banks often offer enticing deals to new customers to draw in business, but once you’re on board, the incentives tend to dry up. Over time, your mortgage interest rate becomes less competitive, and you end up paying more than necessary.
Statistics show that the difference between the rates offered to new customers versus existing ones in Australia can range between 0.5% and 1%. On the average mortgage size of $611,000, this means you could be paying an extra $3,000 to $6,000 in interest every year. The longer you’ve had your mortgage without reviewing it, the more you’re likely paying over the odds.
This is where a good mortgage broker comes into play. A broker’s job is to ensure you’re getting the best deal possible. They have the advantage of being able to compare rates from a wide range of banks and can negotiate on your behalf. Whether you’re buying a new property or looking to get a better deal on your existing mortgage, a broker can be invaluable. They can even help increase your borrowing capacity by leveraging different banks’ policies.
A diligent broker will review your mortgage regularly, ensuring you always have the best rate possible. They can negotiate with your current bank for a better deal or assist you in switching to a new lender if that’s more beneficial.
In conclusion, keeping your mortgage competitive is key to maximising your savings and ensuring you have more money for investing, wealth-building, or simply enjoying life. Don’t let the loyalty tax diminish your financial well-being. Review your mortgage regularly, enlist the help of a quality mortgage broker, and make getting ahead – or just keeping up – that much easier.
Have you experienced the impact of the ‘loyalty tax’ on your mortgage? How often do you review your mortgage rate, and have you considered refinancing? Share your thoughts and experiences in the comments below—we’d love to hear your insights and help each other make smarter financial decisions!
Also read: Australia’s second biggest lender announces good news for mortgage holders
