How much extra is your Big 4 mortgage costing you?

mortgage costing

How much extra is your Big 4 mortgage costing you?

When it comes to home loans, Australians are notoriously complacent, choosing to stick with their Big 4 mortgage despite the higher costs involved. While this can be put down to a number of factors, it is also well known that people’s knowledge of the home loan market and what constitutes a good deal is often lacking.

So, what if I told you that an Australian mortgage holder who had stuck with a Big 4 bank over the last 10 years had paid an extra $22,908 in interest on a $500,000 loan than if they had sought out a more competitive loan? how much extra is your big 4 mortgage costing you

This is the added cost that the average Australian mortgage holder is taking on, in most cases without even realising. This is $22,908 that could be spent on raising children, renovating a house or simply put straight back into the mortgage to pay it off faster.

Wasted money

Collectively, over the past 10 years, it is estimated that Australians wasted a total of $50 billion by sticking with the Big 4 banks. This is money going directly into the bank’s coffers that could be remaining in your pocket.

Even though the numbers speak for themselves, for borrowers who have held a mortgage with a Big 4 bank for many years there can be perception barriers that remain in place preventing them from switching.

The Truth

The perceived “hassle” of switching home loans is a long outdated notion that many mortgage holders still believe. In a recent RateCity.com.au survey, 39.1 per cent of respondents said that they assumed switching financial products would be too much effort for the total amount saved.

The truth is, switching mortgages has never been an easier or more streamlined process. This is largely due to the advent of online comparison sites and online lenders who allow you to switch mortgages without leaving your home. The government ban on early exit fees, that applies to loans settled after July 2011, is an added financial incentive to ditch your current provider and take advantage of the best deals on the market.

Also, the idea that switching home loans will have some upfront costs and therefore isn’t worth doing is an easy one to dispel when you look at the numbers. For the above mentioned example, in which the home loan customer will be saving $22,908 over 10 years, the application fee of switching to a more competitive lender will be covered in the first year of the new loan with savings still left over. All the money saved on mortgage repayments from there on in is cash going directly into your pocket, making the switch well worth your while.

So as you can see, moving past the initial “can’t be bothered” reaction to switching can open up a whole new world of savings for the average Big 4 borrower. All that’s left to do is to find the right loan that will save you the money you want and offer all the right features.

Assumptions:

Lowest rates on the market have been estimated based on a range of sources, including RBA and RateCity historical data. The $50bn figure is based on total loan book for each month, multiplied by the applicable interest rate for that month, divided by 12. Fees are excluded, as are other features and benefits. Loan terms are 30 years and assume no additional repayments have been made. Not a guarantee or projection of future savings. 

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