Did you negotiate a cheap mortgage and then wonder: what’s stopping my lender increasing the interest rate straight away?
Well, there’s nothing. And they do. Slowly.
Ever notice your lender offering new customers a cheaper interest rate than yours?
Well, that’s no accident.
Your lender knows:
- Low rates attract new customers; and
- Current customers tolerate rate increases, without leaving.
Within 2-3 years, you can end up with an interest rate that’s over 1% more expensive than your bank is offering its new customers. That’s $4,000 p.a. you are wasting on a $400,000 mortgage.
The trick your lender uses is to gradually increase your interest rate in small amounts, or fail to pass on the full amount of any Reserve Bank rate cut.
How do lenders get away with this?
They know that 80% of Australians are too complacent or too busy to bother leaving. And they bank on 80% of their customers staying in uncompetitive loans.
Some lenders increase rates more than others. Regardless, you will not remain in a competitive mortgage for long.
There are 2 ways to beat lenders at this game…
- Call your lender
It costs your bank thousands of dollars to replace you. So, rather than risk losing you, banks allow their call centre staff to provide instant interest rate reductions over the phone. But only if you bother to call and complain about your uncompetitive rate or suggest you can get a better deal elsewhere.
We review our clients’ loans constantly and suggest most people will need to consider refinancing every 2 years or so, to remain in a competitive loan. You should be doing the same.
My offer to you…
Get online and find the most competitive loan you can, based on overall costs (interest rate, plus set up costs and ongoing costs).
Whatever you do, don’t waste your money staying in an expensive loan. Be a member of the 20% who keep their lenders honest.