LinkedInFacebook

Loyalty, as a virtue, seems to be overrated in the financial sector, as loyal home loan customers happen to be a fleeced lot, according to the Productivity Commission’s draft report on Competition in the Australian Financial System.

 
Are you paying too much for being loyal to your financial institution?
 


Exploiting loyal customers

“Although financial institutions generally have high customer satisfaction levels, customer loyalty is often unrewarded with existing customers kept on high margin products that boost institution profits,” points out the report that reveals how banks are ripping apart Australian home borrowers by capitalising on their lack of knowledge about financial products.

Currently, there are nearly 4,000 different home loan products and 250 credit cards on offer in the country with only marginal differences between them. However, the sheer number of products on offer can overwhelm a borrower, making it difficult to make a prudent choice. “The need to decide between a large number of options makes product comparisons difficult and leads to choice overload,” the report states.

Sadly, the borrowers are also not helping themselves by sticking to their banks out of a misguided sense of loyalty or sheer laziness. Despite the whole talk about lower interest rates in the market, one in two customers continues to remain with the first bank they ever joined. According to the report, home loan customers find it “too much hassle” to switch between lenders and prefer to keep all their accounts with the same institution. Another factor that prevents home borrowers from switching is the need to decide between a large number of options that makes it difficult to compare products and “leads to choice overload.”

The report also points out that “barriers to switching can make loyal customers ripe for exploitation,” which is true in the case of many existing Australian homeowners who are paying interest at a rate that is 0.3 to 0.4 percentage points higher than what is being offered to new home borrowers. Speaking numerically, “These higher rates are paid by around 15 per cent of existing customers and equate to an extra $66 to $87 per month on the average home loan balance.”


Bringing mortgage brokers under the scanner

Mortgage brokers “are not obliged by law to act in the best interests of the customer” according to the report that blames the “channels for provision of information and advice (such as mortgage brokers)” for not providing adequate information on cheaper products and better features to their clients.

No one can deny the convenience offered to customers by mortgage brokers who are settling nearly 60 per cent of new residential home loans in the market currently. But the report reveals that “70% of broker mortgages are written by aggregators that are owned by lenders.” With so many brokers working for large banks, the PC has raised concerns about the “clear conflicts of interest created by ownership.”


HashChing to the rescue

It is clear from the findings of the abovementioned report that the onus of finding the best deals on their mortgage lies on the customers who must research home loan products on their own despite being assisted by a mortgage broker.

One of the proposals suggested by the report to help consumers is the creation of an online home loan comparison tool that will enable them to evaluate and compare the real cost of various home loan products. Fortunately, HashChing already offers a home loan comparison tool where Aussie home buyers can compare hundreds of deals from over 60 lenders across Australia. The rates advertised on HashChing are broker pre-negotiated rates and can be as much as one per cent lower than lender advertised rates advertised on other comparison websites.

Besides, HashChing has created a network of ace mortgage brokers across Australia to help home borrowers on their financing journey. “To ensure transparency and accountability from mortgage brokers, we require each broker on our platform to maintain a minimum user rating of 4/5 to continue receiving leads,” explains Mandeep Sodhi, CEO, HashChing.

“Sticking to the same home loan provider out of some misguided sense of loyalty is costing borrowers tens or even hundreds of thousands of dollars over the life of their loan,” adds Mandeep, who believes homeowners should continually be looking for a better rate.

He is right. Think about it, a 1 per cent reduction in your interest rate can save you $87,383 over the life of a $500,000 loan with a 25-year term. If you are ready to save more money on your home loan by refinancing, it is time to shrug off the laziness and take the first step by comparing home loans online, here.

HashChing is Australia’s first borrower-friendly mortgage marketplace that allows users to compare discounted broker-negotiated mortgage rates from over 60 lenders across Australia, online.

 

By Vidhu Bajaj,
HashChing Content Writer

 

teaser-popup-img.png

HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.

We already have your details. Please click here to login.