Don't get mad with the banks, get even!

By Terry Ryder, 10th February 2012

Lenders will be relying on “customer inertia” if they decide to raise their interest rates regardless of the Reserve Bank’s decisions, according to financial comparison website RateCity.

In other words, they think we’re too lazy or apathetic to take our business elsewhere and will just wear whatever they dish out. I think they’re wrong.

The ANZ bank will review its interest rates in a meeting today, following no change to the official cash rate from the RBA on 7 February. As an ANZ customer, I can say that if they increase their mortgage rates I will be taking my business elsewhere. There are plenty of alternatives.

Damian Smith, RateCity’s CEO, says it will be a risky move by lenders to increase their interest rates on home loans.

“We estimate that there are over two million variable-rate home loan customers with the big four banks,” he says. “By lifting their variable interest rates by as little as 10 basis points, the big four stand to make an extra $228 million per year or $19 million per month in revenue.

“But it would only take 1% of their customers – which is about 20,000 home loans – to switch away from the big four for the increase in revenue to be cancelled out.”

Smith says borrowers have the power to keep their lenders in line by demanding a better deal and switching lenders if their borrower won’t negotiate.

“Borrowers need to find out what their lender is charging them and compare their home loan to what’s on the market,” he says. “While most variable rate customers still face exit fees on their home loans, switching to a home loan that’s just 10 basis points cheaper could save you $20 a month or more than $7,000 over the life of a 30-year loan (using the average variable rate of 6.80% for a $300,000 home loan over 30 years, excluding fees).”

“Even after switching costs of around $2,000 (including application fees for a new loan), borrowers with a $300,000 home loan would be well ahead inside two years with a rate reduction of less than 0.5%. Discounts of up to 1% versus the average rate from the Big Four can still be found from smaller lenders who are hungry for business.”

ENDS

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