Banks favour affluent borrows

An investigation by Australia’s leading financial comparison website RateCity.com.au (RateCity) has revealed that borrowers who take on a bigger mortgage are being offered cheaper home loans, while many smaller mortgage borrowers are forced to pay higher interest rates.

“Affluent customers”, which are borrowers who can afford a substantial mortgage such as more than $750,000, will receive an average variable home loan rate of 5.32 percent, out of more than 100 lenders in RateCity’s database.

This is 0.42 percentage points lower than the average variable home loan rate for loans below $250,000.

Home loan size

Average advertised variable rate

Above $750,000

5.32%

Below $250,000

5.74%

Difference (percentage points

+0.42%

Source: RateCity.com.au

According to the RateCity investigation, the major four banks – ANZ, Commonwealth Bank, NAB and Westpac – also offer cheaper deals for bigger mortgages. Commonwealth Bank has the biggest spread, with 0.35 percentage points lower advertised variable rates for a home loan above $750,000 compared to a home loan below $250,000.

Bank

Advertised variable rate for loans under $250,000

Advertised variable rate for loans above $750,000

Difference (percentage points)

ANZ

5.63%

5.43%

+0.20%

Commonwealth Bank

5.65%

5.30%

+0.35%

NAB

5.53%

5.28%

+0.25%

Westpac

5.56%

5.26%

+0.30%

Source: RateCity.com.au

Note: ranked alphabetically, conditions and fees apply, rates may vary for different loan sizes

Michelle Hutchison, Spokesperson for RateCity, said lenders have a greater financial gain from borrowers taking on more debt.

“It comes down to the fact that bigger home loans are worth more money to lenders so they will make larger loan sizes more attractive by offering cheaper rates.

“Just as if you were to visit a supermarket to buy a bottle of soft drink, the bigger the bottle you purchase the less you pay per litre. In much the same way, a lender is willing to accept a lower rate per dollar when selling a larger amount of money.

“But just like a bottle of soft drink, bigger isn’t always better when it comes to borrowing and you shouldn’t take on more debt just to get a discount.”

[sam id=31 codes=’true’] Mrs Hutchison said that many borrowers can access some of the most competitive home loans in Australia by comparing deals at RateCity.com.au.

“While most borrowers will be offered higher rates for smaller mortgage sizes, there are several good value deals that don’t have a high loan size restriction, so it’s worth getting online and comparing home loans.

“For instance, there are 65 home loans in RateCity’s database that offer variable rates lower than 5.74 percent, for loans starting from $50,000. The lowest ongoing variable home loan rate is by State Custodians at 4.74 percent for loans starting from $100,000. The difference in mortgage repayments for a $249,000 home loan at 4.74 percent compared to 5.74 percent is about $154 per month or over $55,000 over a 30-year loan term.”

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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