Athena points out that the “loyalty penalty” is costing Australian borrowers billions

Australian homeowners want a change to a two-tier system where many lenders prioritize new mortgage customers over old ones through lower interest rates.

A recent survey of 1,000 homeowners commissioned by the internet lender Athena found that 81% of respondents believed that their lender was offering better deals to new customers, leaving a significant proportion of mortgage holders feeling “cheated” and “punished” for their loyalty.

In addition, 36% of those polled said they were rejected by the bank or lender when they asked for a lower rate.

As a result, more than nine out of ten homeowners believe lenders should disclose their rates and provide both new and existing customers with the same rate of home loan.

“Australian homeowners are right to feel outraged and deserve better,” said Athena Co-Founder and CEO Nathan Walsh.

“This is essentially a breach of trust. Australian homeowners, famous for being a “just exit” country, see injustice. They have been used for too long and time for changes. Interest rates are at their lowest right now, so this is a key point where Australians need money in their pockets, not in banks. “

The price of loyalty

According to an analysis of Reserve Bank data by Athena, Australian borrowers who remained loyal to the current lender imposed a cumulative “loyalty penalty” of approximately $ 9 billion in 2021.

As Walsh explains, this is the difference between the interest rates paid by new and existing borrowers to the same lender.

“The RBA reported that the average price difference for new and existing customers was 0.46% for landlords in June 2021. Unfortunately, for many customers it is even greater.”

While the figure is $ 9 billion, the impact of this loyalty penalty is perhaps more significant at the individual level.

For a $ 400,000 loan, Athena says a 0.46% interest rate differential over 30 years would translate to $ 37,462 in additional interest over the life of the loan – an additional $ 1,249 per year.

“Australian homeowners feel their lender is taking advantage of them, and they are fed up,” said Walsh. “Accruing loyalty penalties is costing customers billions of dollars a year. We think it’s time to stop this practice, and the homeowners are agreeing to do so. “

A question of effort vs savings

However, Athena is not the only voice to look at the cost of loyalty (or lethargy) to home loan customers.

Last December, the ACCC published a report drawing attention to the fact that “a significant number of borrowers” received less competitive interest rates than they might have been, possibly costing them thousands of dollars in additional interest.

So why would borrowers not want to listen to these calls and switch to better interest rates? Mozo’s banking expert Peter Marshall explains that the effort put into this process can act as a deterrent, while some borrowers are simply unable to refinance.

“While it’s easier than applying for a new loan, refinancing can still take a lot of effort, including going through the appraisal process,” he says.

“And for some people, refinancing is not possible because their circumstances may have changed, which means they may no longer receive a loan. For example, their income may have decreased since they took out a loan, or they incurred other debts.

“Ultimately, I think this is a trade-off between effort and stress and the benefit of a lower rate, but there would be plenty of people who would definitely make the effort worthwhile.”

However, recently there has been an increase in the number of switched credits. ABS recently recorded a record high in refinanced mortgage volumes, with loans totaling $ 17.2 billion shifted in July.

RELATED: Athena: Lender who is trying to get rid of clients

Are you fed up with the rate you receive from your current lender? Check out some of the bargain rates available for refinancing in the table below (including Athens) or head over to our dedicated refinanced home loan comparison table to see even more deals.

* WARNING: This comparison factor is only valid for the example or examples shown. Different amounts and terms will result in different benchmarks. Costs such as re-collection or early repayment fees and savings such as fee waivers are not included in the comparative rate but may affect the cost of the loan. The comparative rate displayed is for a secured loan with $ 150,000 monthly principal and interest payments over 25 years.

** The initial monthly payment data is an estimate only, based on the advertised rate, loan amount and the period entered. The rates, fees and commissions, and thus the total cost of the loan, may vary depending on the loan amount, loan term, and credit history. Actual repayments will depend on individual circumstances and changes in interest rates.

^ See information on the Mozo Experts Choice Home Loan Awards

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