Refinancers avoiding "loyalty tax"

Borrowers who failed to renegotiate rate following RBA cuts likely paying well over 100 basis points more

Refinancers avoiding "loyalty tax"


By Madison Utley

Data from online mortgage broker Lendi has shed light on just how much there was to be saved through refinancing, following the series of RBA rate cuts in 2019.

Across all lenders on its panel, owner occupiers who refinanced with Lendi in the first half of 2019 settled on a median rate of 3.76%, a 56bps reduction in the median rate secured.

However, those who refinanced between July and the end of November settled on a median rate of 3.19% – representing an average difference in rates of 127bps and reflecting the impact of the RBA cuts and heavy discounting to attract new customers.

According to Lendi executive director David Hyman, those who haven’t refinanced are likely getting “slugged by a loyalty tax.”

“2019 has presented huge opportunities for borrowers to make headway in paying down their debts. The environment created by a falling cash rate and fierce competition for new loans has been quite remarkable,” he said.

“Owner occupiers who refinanced this year should be sitting on a rate below 3.25% as the rate cuts have filtered through. Those who haven’t refinanced in the last 12 months are likely to be on a higher, back book rate and paying unnecessary interest.”

For the period June to the end of October, Lendi data shows the average difference between interest rates charged to loyal and new owner occupier customers was 84bps by the big four banks and 94bps for other lenders.

On a $400,000 mortgage, a loyal customer with a big four bank is likely to be paying $182 more in interest each month than a new customer. That adds up to an extra $54,571 in interest over the life of the loan (based on October’s median interest rate of 3.24% v 4.08% P&I loan, 25-year loan term).

Within the same parameters, a non-big four lender is likely to be paying $202 more in interest each month than a new customer, resulting in an extra $60,707 in interest over the life of the loan.

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