Depending on your age, you may recall the good old days when loyalty was a positive attribute (relating to banking) and doing business with the same bank worked in your favour. Nowadays, this is no longer the case as maintaining a home loan with the same lender for many years is costing you, irrespective of how good the deal was when you first took out the mortgage.

A constant trend I have seen over the years is that mortgage customers are punished for their loyalty to banks by being offered higher interest rates than new customers. This makes no sense of course as one would think that retaining a customer is smart and profitable, however when it comes to finance, common sense is not that common.

Financial Institutions spend millions of dollars in marketing and advertising to lure in new mortgage customers, as this increases their profits, which is important to satisfy their shareholders.  However this comes at the expense of existing mortgage customers.

In recent times, the Australian Government commissioned an investigation into our financial system and has found that “loyal customers are ripe for exploitation” by financial institutions.

The commission revealed “customer loyalty is often unrewarded with existing customers kept on high margin products that boost institution profits”.

The commission also revealed mortgage customers don’t like switching banks, especially for home loans, as they find it “too much hassle” and they want to keep all their accounts with the same institution. Financial Institutions know this to be the case, and I suspect they use this to their advantage when pricing home loan interest rates for new and existing mortgage customers.

When we review a clients’ home loan (something we do annually as part of our After Care program), in most cases we find that the special rate we achieved for our clients 2 to 3 years ago is no longer market competitive when compared to special deals on offer for new-to-bank borrowers.

If I had to put a number on it, I would say that on average an existing customer with the same bank is paying around 30 to 40 basis points more than the special offer advertised by the same financial institution for new to bank customers. Crazy… I know.

The moral of the story?

Don’t let your home or investment loan collect dust. A review at least once a year is smart. Not only will your own personal circumstances have changed over time, your home loan rate may be costing you more than what you should be paying right now.

One of the biggest household expense for home owners (with a mortgage) is the interest on their home loan.  If you want to save money, focus on the biggest expense first. Makes sense..!!

Our After Care program has been designed with the above in mind to ensure that our clients remain ahead of the game.

Disclaimer: This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and seek specialist advice from a suitably qualified professional.