If you have a home loan, did you know that you could unnecessarily be paying a loyalty “tax”? You could even be paying it if you have an investment property loan. This loyalty tax is a higher interest rate that many lenders charge existing borrowers compared to the one they charge new borrowers.
Read on to find out how you could be paying more interest on your loan than you could be, and what you can do about it.
Why are there lower interest rates for new borrowers?
The Australian lending market is very competitive. Both home and investment property loans are long-term financial arrangements that are worth a lot of money to lenders. They therefore compete aggressively with each other to try and win new customers.
Most borrowers don’t bother to explore their refinancing options during their home or investment property loan term. However, every borrower should monitor the lending market for better deals at least every couple of years, or when either their financial circumstances or market conditions change.
Better yet, get a mortgage broker to do that for free on your behalf. Mortgage brokers work for borrowers, not lenders.
How much difference does a lower home loan interest rate make?
It can make a big difference both to your regular repayments and the amount of interest you pay over the life of your loan. The table below shows the impact of a 1% lower interest rate on a home loan of $600,000 over 30 years.
| Interest rate | Monthly repayment | Total amount payable |
| 4% | $2,864 | $1,031,217 |
| 5% | $3,221 | $1,159,535 |
| 6% | $3,597 | $1295,029 |
As you can see, even a 1% difference in interest rates can make a BIG difference.
Make sure you always look at the comparison rate when you are comparing different loan products. This shows you the interest rate plus loan fees. Lenders are legally required to advertise their comparison rates on their consumer loan products.
Are there any costs to refinance?
This depends on your lender (or lenders). However, these fees can be negotiable. You might be able to refinance to a better deal with your existing lender, or you might have to refinance with a new lender.
How we can help
If you have a home or investment property loan and you’d like to explore your refinancing options, talk to our licensed and experienced brokers at Wisebuy Investment Group. We service clients in the Newcastle, Lake Macquarie and Maitland areas. Don’t put up with a loyalty “tax” if you’re paying one!
We’ll take the time to understand your situation before exploring whether there are suitable refinancing options available to you. We work with more than 60 lenders in the Australian market. If you decide that you would be better off financially by refinancing, then we can help you with your refinancing application. Importantly, we work for property buyers, not lenders.
Contact us today for an obligation-free chat to find out more. We’d be happy to answer any questions you have and to explore your refinance options with you.
