If you’re searching for a home loan in Australia, you’ll usually feel stuck deciding between two options. The Big 4 banks, dominating the scene, and newer players aiming to shake things up. The Big 4 have a solid reputation for stability, but is sticking with them the best move for your wallet?

What are the pros and cons of sticking with a Big 4 bank?

When deciding on a home loan, the crucial factor is not just the lender but finding a loan customised to your needs. Opting for a Big 4 bank may have certain benefits. Their dominance in the mortgage sector positions them as reliable choices. Moreover, these major banks have numerous branches and offer internet and mobile access, providing a diverse user experience.

However, the preference for the Big 4 may come at a price. Due to their higher overhead expenses, these banks may charge customers higher interest rates and fees than smaller banks and non-bank lenders. Their market dominance might also diminish the incentive to provide competitive deals to customers. In terms of customer service, smaller banks and non-bank lenders often outshine the Big 4, given their business size and user base.

So, should you stick to a Big 4 bank for your mortgage? It’s hard to provide a standardised answer that holds for everyone. Choosing the right home loan extends beyond loyalty to a familiar lender. Each borrower has unique needs, and the right choice varies for different borrowers.

Don’t assume that a Big Four bank guarantees a better home loan or user experience, or that smaller institutions are always more cost-effective. It’s equally crucial to avoid automatically assuming that sticking with the Big 4 will be more expensive. Comparing different home loan options is key to finding what suits you best. Instead of clinging to your childhood bank, focus on the features you need and explore the various loan options available. You should also consider reviewing your home loan every couple of years to make sure you’re on the best possible deal for you.

Check if you’re paying the loyalty tax

The loyalty tax doesn’t refer to an actual tax. Instead, it refers to the extra interest loyal borrowers may unwittingly pay for sticking with the same lender.

As per the 2023 Housing Report from the Lendi Group, on average, existing borrowers face interest rates 29 basis points higher than those offered to new borrowers. Notably, the Lender Loyalty difference for customers of the Big 4 Banks stood at 0.30 bps, while for the Non-Majors, it was 0.15 bps.

To determine if your existing home loan comes with a higher rate than what’s being offered to new customers, you can either visit a home loan comparison site or consult your mortgage broker for information on the latest deals from various lenders. However, when you compare rates, make sure you’re comparing apples with apples. It’s not just about the interest rate; check for any fee differences and additional features, too. Also, see if there are any extra costs, like switching fees, to figure out if changing your loan makes sense.

If your lender is offering better deals to new customers, try talking to them about lowering your rate or getting better terms. But if they don’t agree, you can look at different options to find a lender with a lower rate or better features. Just be careful about the costs involved and try to keep your loan term the same to avoid paying more interest than necessary.

By Vidhu Bajaj,
Hashching Content Writer

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