Are the big four banks ripping off homeowners?

Big four mortgage rates still much higher than smaller alternative lenders. Homeowners could save thousands

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published February 5, 2015 4:08 pm AEDT

If you are paying more than 5% interest on your home loan, you could save yourself thousands of dollars.

Following the Reserve Bank of Australia's (ASX: RBA) decision to cut the official cash rate to 2.25% earlier this week, most home loan lenders have passed on all, if not more of the cut to mortgage loans.

Today, National Australia Bank (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) joined their colleagues Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) in passing on the rate cut to borrowers.

And while the banks are all spouting how the rate cut saves their customers money, their standard variable rates are still well above rates offered by other lenders. ANZ says it will save customers with an average home loan of $280,000 about $60 per month.

ANZ will drop its standard variable rate to 5.63% next Thursday, the same as NAB's while CBA's new rate will be 5.65%, slightly below Westpac's 5.7%.

But all four of those rates pale in comparison with some of the smaller lenders. Loans.com.au's standard variable rate is 4.29% – around 1.3% cheaper than the cheapest big-four bank rate.

And if you think that doesn't mean much – here's something you might want to consider.

On a home loan of $280,000, borrowers would end up paying $300,581 in interest over 30 years at 5.63% – the standard rate offered by ANZ and NAB. Monthly repayments would be $1,613.

If borrowers switched to Loans.com.au's 4.29% loan, monthly repayments would fall to $1,384 – a saving of $229 a month. Over the life of the loan, you'd also save more than $82,000.

Clearly the big four banks are relying on their customers remaining with them, and not bothering to switch to a cheaper rate. All four also offer professional packages or premium rates – which can chop off as much as 1% of the standard variable rate. But they are still not as cheap as other lenders are willing to offer.

I'm in the process of switching from a big four bank to a smaller lender and saving myself and my family thousands of dollars. Are you going to let the banks rip you off?

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