1 Followers
Why is it that I could get about a 0.50% lower rate on my home loan with my bank if I was a new customer? Shouldn't existing customers be getting a lower rate for loyalty? Is this just happening at my bank or with other banks as well? Seems unfair!
Responses
Hi Steve
No, unfortunately it happens at all the banks/lenders. The old adage that 'it's cheaper to keep your old clients, rather than buy new ones' seems to be wasted on them.
The good news is, by speaking to your lender or broker, you can often have your rate reduced. The reason behind this is that the lender usually doesn't make much out of your loan the first year or so. After a couple of years, they are finally making some profit out of your loan, & are therefore very keen to see you stay.
We are often arranging discounts on our clients existing loans, rather than simply refinancing, which costs money.
The discount may not be quite as low as that on offer to new loans, but once the refinancing costs, (& lets face it, the hassle of doing so) are taken into account, its still a better deal.
Cheers
Craig
Hi Steve,
It does happen at all banks. When a bank is looking to increase its loan book or compete for market share they will offer a special or reduced rate to entice borrowers to think of them.
They won't offer this to their existing customers as it would simply cost them too much, for example if CBA offered every customer on their book their lowest advertised rate, they would give up around $2.5b per year or around one quarter of their profit.
They expect that no more than 2% of customers will actually refinance versus gaining 12.5% of new loan applications with their discounted offer.
I hope that makes sense and if you are still paying a "standard variable rate" please contact a broker near you to improve your deal.
Regards
Scott
scott.howell@mobilelender.com.au
Hi Steve,
Great question. This is a big frustration for many clients. Why do Banks offer lower rates to new clients?
There are actually a couple of reasons.
The first is just like any market sometimes there is less demand and the retailer has to drop their price to maintain sales levels. Now if you're the customer who purchased the item "let say a fridge" yesterday and you see it on sale today you are going to feel like you have missed out on the bargain and rightly so. What you needed to do was haggle and ask is this the best you can do. With lending, probably the best way to avoid this is to speak with a professional haggler like a mortgage broker who often know which lenders are looking for business and willing to discount.
The second thing is Banks know that most people are just too apathetic to move lenders. Do you know how many times I have heard, but I have just gotten used to xyz lender internet banking, and then there all those direct debits to change, new cards, I will have to tell payroll about my new bank details. It's just to much hassle. Banks know this..
The third thing is, and there are numerous surveys to back this up. Most people don't even know what interest rate they are on. Most people only know how much they are paying every month. that it.
If your a re willing to go through the pain though, a saving of 0.5% on a typical $500,000 mortgage is over $2,500 per year which is well worth the hassle.
Most mortgage brokers we be willing to negotiate with your lender for you with your permission. This shows just how seriously your considering changing. They can also show you what the competition to you lender is doing and you can then make an informed choice.
Hope this helps
Steve, Hello and thank you for your question. As a mentioned by others, it is very true that Banks, in offering very competitive products to new customers, do not acknowledge the loyalty of existing customers. Some banks are so brazen about this issue that they actually show in their fine print that the advertised competitive rates are for "new" customers only.
This is one of the main reasons that many experts recommend you have a health check completed on your existing home loan at least every two years. Another reason is that Banks do not recognise the increasing value of your home and therefore the lowering of their risk, which could often entitle you to a lower rate.
I have access to over 25 Lenders and I would be happy to conduct that health check on your behalf. I am based in Western Sydney, so quite close.
Let's get together and find a way to start saving you some dollars.
Best Regards
Ken Olds
1300 ASK KEN (1300 275 536)
email: - finance@AskKen.com.au
Mostly it has to do with the cost of funds that the lender used, when the original loan was written. If lenders can obtain new funds at a lower rate they may pass on the lower rate to new customers and offer the new customers a lower rate on the home loan. Other lenders will just use the cheaper cost of funds to make a bigger profit. Because the margins are already in place for existing customers, there is a point at which they can be lowered to, then they become a loss.
It will also depend on many lenders appetite. Lenders may find that their volumes have dropped below expectations, so they offer cheaper rates to acquire more customers, quite often this is almost a loss leader, but the lenders hope to make up the profit by cross selling insurance and other products. This option is reserved for lenders who keep a larger profit margin in their loans.
The recent rise in investment rates may assist owner occupiers obtain cheaper rates, while one goes up, the potential for the other is to go down marginally.
I hope this helps.
Hi Steve,
As per everyone else's response you are certainly not alone with this issue and this is consistent with every bank.
There are always a few factors that determine pricing. Cost of funds at time of your loan was drawn down, cost of funds at the time of enquiry, how long your loan has been transacting for, the balance of your loan etc
Your broker will be able to negotiate for you and will be able to provide comparable rates to your bank to try and get your rate down. If there is no luck then they can get you an alternative solution so you can receive the interest rates you deserve.
Hope this sheds some light in the situation.
Always happy to answer any more questions you may have.
Nicole :)
Pink Finance
happens with most. with some banks if you call and question the difference they may offer the rate to you. I believe existing clients should receive the same reduced rates automaticaly but as customer service is often not a major interest to many banks they don't.
