Attention property investors: if your home loan is more than a couple of years old, there’s a good chance your interest rate is too high.
According to the most recent Reserve Bank of Australia data, for July, investors with outstanding loans (i.e. existing customers) were charged significantly higher interest rates than investors with new loans (i.e. new buyers or refinancers).
On average, investors with outstanding loans were charged an extra:
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0.39 percentage points for principal-and-interest loans
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0.53 percentage points for interest-only loans
And those are just the averages. Some investors with new loans were able to make even larger savings.
Why do new customers pay lower rates than existing customers?
If you’ve got a mortgage, you might be wondering why your lender is making you, a loyal customer, pay higher interest rates than new customers.
There are three reasons.
First, interest rates have fallen significantly in recent years – since 2016, the Reserve Bank has reduced the official cash rate by 1.65 percentage points.
Second, lenders know a lot of borrowers ‘set and forget’ their home loan, so they believe they can get away with withholding some rate cuts from existing customers.
Third, lenders know new buyers and refinancers have a lot of options, so they realise they have to fight hard to win their business.
How can you get a lower interest rate?
If you’re sick of being overcharged, you might want to think about refinancing.
Some lenders are not only offering very enticing interest rates to refinancers – they’re also offering special cashback incentives.
So, potentially, you might get paid to switch to a lower-rate loan.
Refinancing won’t be suitable for all borrowers. But it might be suitable for you.
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