Mortgage deals go begging as borrowers lose out

By Sunday Herald Sun, Nick Gardner and James Campbell, 26 July 2009

MORE than half a million Australian homeowners are paying nearly $1 billion a year in unnecessary interest because they failed to negotiate the best deal on their home loans, the Sunday Herald Sun can reveal.

Confidential industry figures show that about 25 per cent of Australia's 2.5 million floating-rate mortgage borrowers are paying their lender's full Standard Variable Rate (SVR), typically 5.74 per cent.

Yet almost all could refinance to rates as low as 5 per cent sometimes less, saving the average household $1350 a year.

The excessive payments stem from a number of sources.

In today's market, most new borrowers are sold packaged products that offer discounts off the SVR of about 0.7 per cent, depending on the size of the mortgage. But this is a relatively recent development, and not everybody will be benefiting.

"Anybody who has had their mortgage for five years or more will probably be paying a very expensive SVR," said one senior bank source.

"This is simply because they took their loans before today's heavily discounted deals were introduced."

Other borrowers likely to be paying the full SVR rate are those who took introductory or "honeymoon" deals, as well as those who took fixed rates, because both types of loan revert to the full SVR once the introductory or fixed period expired.

According to the Reserve Bank of Australia, the average size of outstanding mortgage balances at the end of March was $193,000.

Based on that balance, and assuming a 0.7 per cent reduction from the typical SVR, the interest savings add up to $112.58 a month. However, some banks will not give the full 0.7 per cent discount on such small loans.

Westpac, for instance, will only give a 0.7 per cent discount for mortgages of $250,000 or more, and most will not give any discount at all for loans of less than $150,000.

In these cases, financial planners suggest simply refinancing for a bigger amount enough to qualify for the discount then repaying the extra money off your loan once the funds have come through.