Australians are handing over as much as $9.9 billion to the big four banks because they couldn't be bothered switching mortgage lenders.
An estimated 40% of mortgage holders say they haven't switched lenders in the past decade, despite the availability of cheaper rates elsewhere.
Comparison service Finder estimates that these 1.17 million households could save more than $8,000 each over the term of a 30-year loan by switching to variable home loan rate of just 0.1% below the current average 5.2%. That's based on the average mortgage size of $379,400.
There are more than 150 home loans with rates under 5.2%, including Yellow Brick Road Holdings Ltd (ASX: YBR) rate smasher home loan at just 3.91%, which would save borrowers $291 a month in interest and $104,992 over the life of the loan – as the image below depicts.
The average variable rate of the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) is now 5.61%.
If a borrower switched from an average loan with one of the big four banks to the Yellow Brick Road mortgage, they'd save $139,956 over 30 years. Millions of big four bank mortgage customers saw their interest rates rise in the past two weeks after the banks announced rate hikes last month.
However, many customers will likely have negotiated rates below that. My new mortgage rate with NAB is 4.75%, but I'm considering switching, given the cheaper rates available, and monthly savings of around $220 on a 20-year loan.
Despite the savings on offer, Finder's survey of more than 1,300 Australians found that only 6% were considering switching lenders. Among those who haven't switched, 24% admitted they couldn't be bothered with the paperwork and 13% said they thought it would cost too much.
I can understand many people thinking switching is too hard. Banks certainly don't make it easy to do, and the process is by no means quick. From application through to having the loan switched can take weeks. And it's not just the loan application process that's a pain. It could also mean switching savings accounts and amending regular direct debits.
The problem is compounded because the savings aren't that tangible to most people – unless they go through the process. I also suspect the additional issue is that Australians put a lot of faith in the big four banks as safe, and view other lenders as 'higher risk'.
Foolish takeaway
If the process was easier and quicker, we'd definitely see more people switching away from the big four banks. But as the exercise motto applies here, 'no pain, no gain'.
