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Kochie explains back-book prices and why your current lender may not have the best deals

Reviewed by expert, David Koch
3 min read
20 Nov 2023

The big banks could be earning billions of dollars each year from long-term customer complacency, which may have even increased since the Reserve Bank’s 13 cash rate rises since May last year.

Since then, Compare the Market’s Economic Director David Koch said lenders have been fighting harder than ever before to attract new customers with lucrative cashback offers and discounted interest rates, while existing customers have been left in the lurch.

Compare the Market’s latest research finding that almost half of Australian homeowners could be getting stung with higher back-book rates and fees because they’ve never refinanced.*

“Lenders regularly profit from borrowers’ apathy by reverting to higher interest rates to customers already on their books,” Mr Koch said.

“For example, one of the big banks has a net interest margin of 2.31% – now that’s approaching the size of the 3% serviceability buffer banks stress test you, so that’s a lot”.

Compare the Market analysis of some of the rates available from the Big Four showed the average difference between front-book and back-book rates is 1.99%.

Therefore, a person with an owner-occupier $750,000 loan could be saving $1,023 a month when they switch from a rate of 8.54% to 6.55%.

Mortgage size

The difference between variable rates in the market

Minimum monthly repayments on variable P&I rate of 6.55%

Minimum monthly repayments on variable P&I rate of 8.54%%

Difference in monthly minimum repayments

$500,000

$3,177

$3,859

$682

$600,000

$3,812

$4,673

$818

$750,000

$1,023

$5,788

$1,023

$900,000

$5,718

$4,631

$1,228

$1,000,000

$6,354

$7,718

$1,364

Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 6.55% compared to 8.54% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees.

“If you’ve been with your current lender for a while, there’s a good chance you’re on a back-book rate, and there’s a better deal out there for you,” Mr Koch said.

“Do your research and find your current lender’s front-book rate – ask them to match it.

“If they don’t at least offer you a discount, be prepared to walk.

“The bank will often say they can’t match their front-book rate because that’s only for new customers, but that’s a load of rubbish.

“They should be able to. They just don’t want to because they’re making money off your loan, which is on a higher interest rate”.

Mr Koch encouraged borrowers to be sceptical about their current interest rate and to use websites like Compare the Market to make sure it’s competitive.

*Survey of 1,005 Australian homeowners, conducted in September 2023.

For more information, please contact:

Natasha Innes | 0416 705 514 | natasha.innes@comparethemarket.com.au

Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, travel and home loan products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.

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