Why a bank home loan is a $100,000 rip off

By Nila Sweeney


Did you know it is possible to save over $100,000 on your mortgage by going with the most competitive standard variable home loan available from a non-bank lender instead of with a bank Standard Variable loan?
According to the latest issue of Your Money Magazine, available from your news agents now, the standard variable comparison rate for the cheapest non-bank lender (State Custodians Mortgage Company) is a whole percentage point lower than the average of the big four banks.
On a $400,000 loan over 30 years repaid monthly that’s a saving of over $104,000. The latest edition of Your Money Magazine also explains that there are substantial savings to be made by taking out a non-bank basic variable or three-year fixed deal when compared to the big four’s rates.
Why would you bother with a big bank home loan? How can the big banks get away with putting interest rates up whenever they feel like it? And what is Julia Gillard’s government going to do to help borrowers?
Australia’s central bank said at its February meeting that there was not solid reason to move interest rates. In spite of that assessment, all the major banks and some smaller lenders decided to increase their home loan rates.
All four major banks continue to rake in huge profits but argue the rate increases are necessary because their funding costs are rising due to global economic uncertainty.
Here’s how much they earned in the last quarter year: ANZ $1.4bn, NAB $1.4bn, Westpac $1.5bn and the Commonwealth Bank just posted a profit of $3.62bn for the December half year.
Heidi Armstrong, director of non-bank lender State Custodians Mortgage Company, says she has a news flash for all borrowers: the banks are not going to change.
“Banks have two customers. They have borrowers but they also have to please shareholders so they will do whatever it takes to maintain their profit margins,” says Armstrong.
“It would be great if the government stood up and said it needs to make changes to policy to support more competition in the home loan marketplace,” says Armstrong.
She says rather than politicise interest rates and put pressure on the banks to keep their rates in line with the RBA, they should be able to price home loans the way they choose.
What she wants to see stopped is the big banks’ habit of “bulking up” the cost of other products, such as charging over-the-top interest on credit cards and business loans to keep home loan interest rates relatively low.
Armstrong says true competition will only come about when the difference between a healthy non-bank sector and the big bank home loans is allowed to become completely transparent.
What can you do?
The best thing you can do as a borrower is vote with your feet. Shop around for a home loan and make sure you get the best possible deal around. The time it takes could save you over $100,000. Imagine what fun you could have with that much cash. Why give it to a bank.
Best non-bank standard variable loans
Company Product Min loan Max LVR LMI above Set up fee Ann fee Comp rate Loan cost Saving v Big 4 Average
State Custodians SV 150,000 95% 80% $499 $345 6.22% 883,825 104,003
Homeloan HQ Rate Lock 200,000 75% na $237 $330 6.28% 889,444 98,384
loans.com.au Dream Loan 50,000 95% 80% $0 $0 6.29% 890,382 97,446
Ratebusters Fightback II 80,000 90% 80% $645 $0 6.31% 892,260 95,568
MyRate Advantage Loan 100,000 95% 80% $0 $0 6.35% 896,019 91,809