A new study of 23 Australian financial institutions conducted by the University of New England shows how much better off mortgage holders with customer-owned lenders such as The Greater have been than major bank customers over the past decade.
The study, carried out by Professor Abbas Valadkhani, was published in the Journal of International Financial Markets, Institutions & Money.
It shows the average (mean) standard variable rate charged by lenders in the period 2000 to 2012. The Greater ranked fourth cheapest of all lenders; much higher than all of the major banks. After passing on more of the RBA’s recent rate reduction than any other lender in the study, it’s likely that The Greater would currently rank even higher.
|Lender||Average home loan rate 2000-2012 (%)|
|Greater Building Society||7.08|
|6 building societies (ave)||7.15|
|14 Australian banks (ave)||7.25|
|Three foreign banks (ave)||7.35|
|All 23 financial institutions (ave)||7.24|
|Cash rate (ave)||5.14|
The figures quoted in the study really hit home when you look at what the difference in rates means to a borrower in dollars and cents.
Imagine two borrowers who took out a $300,000 loan in 2000. One with The Greater and the other with the most expensive major bank quoted in the study (Westpac). Using the average rates quoted in the study and assuming that both borrowers made the same minimum payment required on the bank loan, I calculate that right now the Greater borrower would owe $13,700 less than the bank borrower.
Upon paying off the loan at the end of 30 years the bank borrower will have paid $60,000 more than the Greater borrower. The Greater borrower will have paid their loan off 2.5 years earlier.
Interest rates aren’t the only thing to consider when choosing a lender. But customer-owned institutions consistently achieve better customer satisfaction ratings than the big banks too.
There are bank customers that are unwittingly walking around with a hole in their pocket. They can keep more of their hard-earned money where it belongs if they switch their loan to a lender like The Greater. It is easier than you think.
Have you switched your home loan from a major bank? Given you could save thousands of dollars what is stopping you from switching? Please share your thoughts below.