Let me talk about my mortgage. While we are using examples from my mortgage, I would suggest your home loan is similar. My mortgage started in july 2005 with a regular home loan company.
From July 2005 to Mar 2010 we have had 6 interest rate drops and 11 interest rate hikes. Now something fishy is going on with our home loan. When the Reserve Bank of Australia has dropped its rate (six times) and our home loan company has followed, they have taken on average 11 days to drop their rate. However when the RBA has increased its rates (11 times) they have taken on average 3 days.
So when it was to their advantage they acted quick smart. However when it was in my family’s advantage (and every one of their home loan customers’ advantage) they took nearly four times as long to act.
Now I’m no banking expert, however don’t they just have to punch some numbers into their computer!
Well, you might not think this is very much money. However, let’s pretend a bank has 1000 home loans and each home loan is worth $350,000. This means they have $350 million owed to them.
Let’s pretend that they are earning 5% per year on this money. This means each year they are earning $17,500,000 on their money or $47,945 a day in interest.
If all of a sudden they start getting 4.75% on this $350 million, now they are only earning $16,625,000 on their money or $45,547 a day in interest or $2398 less per day.
So if this bank could not change the interest rates for an extra 9 days they would save themselves $21,582. So the amount adds up. Also, if they could do this a couple of times a year, well you have to add that amount to the $21,582.
But this bank is a made up bank with only 1000 mortgage customers. However, the big banks have ten of thousands of mortgage customers, possibly even hundreds of thousands of customers. This is not small amounts of money with that many customers.
So who pays for this… the mortgage customer! We get stuck with the extra interest each year. And while it might not be a lot for us individually as home loan customers, add up the amount and it’s a bucket load for the people lending it to us.
Should there be a law against this… I believe so. I think the government should impose a time line after the RBA moves rates for the banks to move their rates by then. And when I say a time line, I mean a law that states: all interest rate movements must be made within 2 days of the RBA decision.
There it’s that easy, and the banks won’t be able to wait 8, 9 or even 12 days to put their rates down. Pass this on to your friends to get the word out!
But this is just the first fishy thing. Let me go back to when we took out the loan (July 2005).
My interest rate on my loan was 6.76% and the RBA cash rate (the rate home loan companies go by) was 5.50%. So the difference between my loan rate and the RBA was 1.26%.
It stayed at 1.26% difference until Jan 2008. Then it went to 1.38% difference.
Then in Feb 2008 it went to 1.46% difference.
Then in March 2008 it went to 1.64% difference.
Then in May 2008 it went to 1.74% difference.
Then in July 2008 it went to 1.89% difference.
Then in Nov 2008 it went to 2.33% difference.
This is where it has stayed until now. So while the March 2010 cash rate was 4%, my home loan was 6.33%. A total of 2.33% higher. However if I was getting the same difference as when we first signed up we would be at 1.26%, my home loan rate would be at 5.26%, 1.07% lower than it is currently.
So not only have we had to put up with 11 increases in the interest rate (versus six interest rate decreases), slow changing of the interest rate down by my home loan company, but we have also had to put up with our home loan company increasing their difference in rates between the RBA and what they charge!
This says to me that home loan companies can do whatever they like! They put their company profits well above their customer service.
If you have your old home loan statements, check them out. You might find a few surprises over the last few years as well.
My name is Adam Goulding and my story is quite simple. Four years ago my bank balance was so low paying rent was a big problem.
Then like a flash of lightning, a thought so extremely simple, yet a powerful realisation hit me. Whatever happened in my life with money up to March 15th 2005 wasn’t working!
Then my girlfriend, Renee let me in on her system for growing money.