Interest rates

Interest rates: Peter White urges borrowers to beware of hidden dangers associated with refinancing following RBA rate hike

Leading lending expert urges mortgage holders to beware of hidden dangers associated with refinancing as the big four banks seek to entice more customers with ‘cheap deals’ after this month’s rate hike- this.

Peter White AM, chief executive of the Financial Brokers Association of Australia (FBAA), urges Australians considering switching mortgages to proceed with caution, warning that ‘cheaper is not always better’.

The director’s message comes after the Reserve Bank of Australia raised the cash rate by 50 basis points for the fourth time in as many months on Tuesday.

With the base rate now at 1.85%, Mr White is asking borrowers to be vigilant as big banks seek to entice vulnerable customers who are struggling to repay to sign up for his services.

“Some banks are now offering cheap variable rates only to new borrowers. It’s a trap,” Mr White told news.com.au.

“For the lender, it’s about using a marketing budget to generate more customers, knowing that most customers will stay because it costs to switch again.”

It’s all part of a “vicious circle” that lenders use to trick customers into borrowing from them, Mr White explained, where new customers are caught off guard because the rate offered doesn’t always mean the customer will be better off in the long run.

“There is a hidden danger in times like this that is rarely talked about,” Mr White said.

“Banks will seek to attract those considering refinancing as new customers and will offer cheaper variable interest rates that are significantly lower than their fast-rising fixed rates. This is a case of ‘beware you of the buyer”.

Cash back and exclusive discounted rates for new customers are some of the lures banks use to attract new borrowers.

Both come at the cost of putting the lender’s existing customer base at a disadvantage, as their higher interest rates offset the lower rate offered to new customers.

“Borrowers should be aware that next time they will be the existing customer facing higher rates and will be at a disadvantage when rates increase,” Mr. White said.

“It’s an old game to attract new customers with a perceived advantage that you won’t take advantage of until the next move.”

Also, some banks use a tactic where they try to offer you a better rate after you’ve accepted another offer.

“If they were serious about looking after you they would have offered it to you when you first approached them, so ignore that offer and don’t get distracted as it will cause you even more headaches. head and will make the process even more complex,” he said. .

Although Mr. White advises borrowers to refinance with caution, saving on your home loan isn’t entirely out of order.

Rather than focusing on the big four banks, Mr. White recommends looking at what second-tier banks such as Suncorp and non-banks such as Bluestone have to offer.

“Going with the big banks is often the most expensive route and may not be in your best interest due to constraints and other factors unique to you,” Mr. White said.

“Remember, the big banks can only sell you their products, and their goal is to take care of themselves and their shareholders, not to act in your best interests.”

Borrowers are also advised to go through a mortgage broker, rather than a bank directly. Brokers are free to use as they receive a commission from lenders once they sign up a client for a service.

They also have access to a range of offers that are not always available to borrowers who go straight through the back and can find a rate and repayment schedule that suits a borrower’s needs.

“A finance broker is obligated to act in your best interest and sometimes that means explaining that the best option may not be to refinance,” Mr. White said. “(They are also) mandated by law to act in your best interests, whereas banks are not.”