How One Australian Saved Thousands on Their Mortgage by Switching Banks
Lachlan Gow, a 24-year-old from Adelaide, has demonstrated how changing banks can yield significant savings for mortgage holders. Despite many Australians remaining loyal to the banks set up by their parents, this story highlights the financial benefits of exploring other banking options.
Gow had been with the same financial institution since he was 15, a legacy of parental influence. However, it wasn’t until he and his partner sought a mortgage that he reconsidered his banking choices. After receiving pre-approval with his existing bank, he was shocked by the interest rate quoted. Concerned about the “ridiculous” rate, he began researching alternatives.
He explored various banks, focusing particularly on smaller institutions. After thorough investigation and phone calls, Gow found a bank offering a similar loan product with an interest rate over one percentage point lower than that of his original lender. This decision proved to be advantageous, as he estimated annual savings in the thousands.
His repayments are now $1,700 per fortnight—significantly less than they would have been with the higher interest rate. This reduction eases financial pressure, making future repayments more manageable. With the Reserve Bank’s recent interest rate cuts, Gow intends to keep his current repayment level to get ahead on his mortgage.
A survey by the Customer Owned Banking Association revealed that over half of Australians remain with their primary bank due to parental ties. Approximately one-third of respondents had their accounts opened by their parents, while an additional 20% chose to stick with the bank their parents used. Surprisingly, almost 61% of those surveyed had never switched banks.
Finder’s personal finance expert, Taylor Blackburn, suggested that this trend may stem from “laziness” or the perception that switching banks is overly complicated and time-consuming. Many people feel overwhelmed by the idea of altering direct deposit arrangements or automatic payments.
Blackburn underscores that loyalty to a poor interest rate can be detrimental. According to the Australian Bureau of Statistics, while the average online savings account currently pays only 1.4%, top accounts offer rates as high as 5%. He noted that, for the average Australian with $47,750 in savings, sticking to a lower-paying account can cost around $1,770 annually in lost interest.
Interest rates for home loans can vary widely among lenders, with Canstar reporting current rates ranging from 5.39% to as high as 8.79%. Blackburn pointed out that challenger banks often provide more attractive offers than traditional banks, which many consumers tend to favour out of a belief in better customer service and security.
However, he reassures borrowers that all Australian banks are covered by a government guarantee of up to $250,000 under the Financial Claims Scheme (FCS). Furthermore, he advises that interest rates should not be the sole factor when selecting a home loan; prospective borrowers should also consider features like offset accounts, redraw facilities, and low fees.
In summary, Lachlan Gow’s experience serves as a valuable lesson for mortgage holders in Australia: exploring banking options could lead to substantial savings. With many Australians tied to their banks through family legacy, this story encourages them to reassess their options to secure better financial outcomes.
