Everyone hates the Banks! That’s a given. Everyone also seems to hate the major banks the most because they make so much money.
However, I tend to feel that the Major banks are the most transparent when it comes to the rate you pay on your Home Loan.
How the Major Banks operate:
The “major banks” have a standard variable rate for a Home Loan. For example, currently it is about 5.3%. As a professional you get a discount from this rate. The average would be roughly 1.2% so you might be paying 4.1% on your Home Loan. The more you borrow the bigger discount you get. It is that simple.
Depending on how keen the bank is for business at the time you apply the discount may vary. If your bank is down on its yearly targe when you negotiate your new loan you will get a bigger discount as they are very keen for business. If they are over budget at that time the discount will be less. Thus, is always a good idea to check the market each time you contemplate a loan.
The smaller banks can’t get their money as cheap as the major banks. It is an up- hill struggle for them to be competitive.
What they can do and have been doing recently is “re – price” their back book of loans as quietly as they can to try and stay competitive at the front end.
What this means is that they will lift rates on existing loans and offer lower rates to attract new business. Thus, if you have a loan with a smaller bank at 4.2% you may find that this rate has gone to 4.5% or 4.6% (or higher) in the last 6 months whilst they are still offering 4.2% for new customers.
I personally don’t really like this practice although I appreciate that it is not easy for them to compete. It penalises the loyal existing clients that don’t hassle their bank every day about rates.