Avoiding Mortgage Lazy Tax
With interest rates at an all time low, more and more people are entering into the property market and taking on debt. Whilst this does allow for people to own their own home, or generate an additional income, many of these people forget to be on the lookout for the best rates. This can lead to what is called a “Lazy Tax” or a “Loyalty Tax”, where the person paying back the debt loses out on reduced interest payments through sticking with their original lender. Our award-winning property and finance experts have put together some tips below on how to go about avoiding the mortgage lazy tax.
How Much Can I Save By Avoiding the Mortgage Lazy Tax?
The ACCC outlines in their Home Loan Price Enquiry Report the average differences in interest rates paid by new and old variable customers between rates, with the results shown below:
If you were to have a loan of $500,000 to pay off over the course of 15 years, with 12 years to go, reducing your interest rate payments by 0.47% percent would save you $2,350 each year in interest, and $28,200 over the rest of the loan. Reducing your interest by 1.04% would reduce your interest by $5,200 each year for the life of your loan. To determine the savings you could achieve, check out our calculator here.
Requesting a Lower Rate
One of the ways to avoid the mortgage lazy tax is to request a lower rate from your bank, which can be arranged through a mortgage broker. Banks are willing to arrange a lower rate for you, as the possibility of you moving to another lender is something they want to avoid. Banks usually calculate this rate by looking at the loan amount, the loan to value ratio, and most importantly, the repayment history. If you are repaying your loan on time, or even ahead of schedule, the bank’s automated system may be more inclined to reduce your rate.
If you are unsatisfied with the provided discount, you are able to refer your request to higher management, who will manually assess your rate reduction. Whilst they may not be able to provide a rate equal to a competitor, they will try to keep you as a lender. If you still do not believe that the offered rate is fair, you can arrange for a refinance.
If you are unable to negotiate an acceptable rate reduction with your lender, a refinance is the other option you can take. This involves switching your loan over to another lender with better interest. The initial cost of a refinance is high, with exit and administration fees, but over time, you can save thousands in interest payments. Alongside these initial high costs, there is significant time and effort required to arrange a refinance, which requires going through the whole approval process again. Utilising the services of a mortgage broker for this process ensures that the best rates are being arranged, and the considerable time and effort required is left to someone else.
Over the last 20 years, Vision Property and Finance has serviced for hundreds of clients looking to renegotiate their interest rate or refinancing. If you are looking for an award-winning mortgage brokering service, get in contact with us here.