If refinancing is the last thing on your to-do list, you’re not alone. 77% of mortgage holders see refinancing as a ‘hassle’, even though it can save an average of $50,000*. The reasons people don’t switch are surprising.
We’ll drive for 10 minutes to find cheaper fuel, cling onto dockets to save 4 cents a litre, and get up early to make lunch to save $10, but when it comes to mortgages – one of life’s biggest financial decisions – Australian consumers seem willing to splash money around.
Everyone loves a bargain. Or do they? A recent survey** of 1,500 mortgage holders painted a very confusing picture.
While 52% aren’t confident that they have the best home loan deal, 63% have not refinanced the loan on their current property. In a nutshell, we suspect we’re overpaying but we still don’t shop around.
Even more perplexing is that 88% wouldn’t leave their lender for a 20 basis point discount, and 1 in 7 would never leave their lender regardless of how big the discount. So, even if they did shop around to find a cheaper deal, they still wouldn’t switch.
Despite being dissatisfied, borrowers remain fiercely loyal. Nearly half had their loan for more than five years and three quarters had their loan with a big four bank.
Vincent Turner, founder of fintech company uno Home Loans, suggests this reluctance to switch is costing consumers serious money in the long-term.
”If you’re unhappy with your current home loan deal but stay anyway, you’re effectively paying an inertia tax. Interest rates are at low levels, so it’s a great time to push through the barriers that have prevented you from switching and trade up to a better deal.”
Crunch the numbers:
A comparison of interest rates revealed that people who have switched are on an average rate of 4.29% versus the 4.42% for those who haven’t switched. On a $500,000 loan, this would equate to $468 more per year for non-switchers, or $14,040 extra over 30 years.***
Given that even a modest discount adds up to a saving of thousands, there must be good reasons for not switching, right? Not always. The survey revealed the common roadblocks are fear, misinformation and laziness.
Fear of awkward conversations.
Half of those who admit to not switching say that just the thought of having their finances reviewed by a third party is enough to put them off.
Misunderstanding of exit fees.
Nearly two-thirds say exit fees are a deterrent, seemingly unaware that exit fees have been removed from many home loans in recent years and can often end up being only a few hundred dollars – insignificant in the broader picture.
Feels like hard work.
While online mortgage brokers are now streamlining a lot of the process, people still recall the old manual system.
Going into a bank (where is that again?), waiting on hold, shuffling thick wads of paperwork and trying to complete forms asking for documents and account numbers that you’ve filed at the top of the wardrobe in a big yellow envelope is not an attractive way to spend a Saturday.
The traditional process is so inconvenient that 74% of Australian mortgage holders are turned off switching lenders because of the time involved in the process, and 77% describe refinancing as a ‘hassle’.
We just can’t be bothered!
Identifying this challenge, disruptive online mortgage brokers like uno Home Loans have invested in a combination of new technology and seven-day support over phone, text, email, and chat to make the process of getting and refinancing a home loan quicker and easier.
Turner encourages people to reconsider investing the small amount of time and effort to see if there is a more effective product for you.
“I’d encourage Australians to put in perspective the roadblocks that turn them off switching their home loan. Is the inconvenience of putting in a couple of hours’ effort switching home loans or the discomfort of having a conversation about your finances worth saving $14,000?”
Visit uno Home Loans’ refinancing hub if you’re overdue to compare your home loan or want to see how much you could save by switching lenders.
*Average saving for uno refinance customers who switched to a lower rate between January and May 2018. Savings calculated over life of loan, assuming consistent repayments.
**Survey of 1,500 mortgage holders by CoreData on behalf of uno
***Assuming minimum monthly repayments