We usually expect to pay the price we are quoted. But when it comes to home loans, it is hardly ever the case.
Even though we are both trained as accountants, until recently we hadn’t bothered to check – even as interest rates climbed. We assumed the rates we were being told we were being charged were the rates we were actually paying.The price quoted usually isn’t the price paid
The other, arguably less reasonable, way is what’s called the “simple” method. Our investigations show that this technique is used by all the big four banks, and probably many others too. You might expect to pay back $105,000. Instead, the banks’ method of calculating interest results in a total repayment of $105,116.and added to your balance once a month. These regular increases mean your interest compounds costing you more.In July 2023, the average size of a new mortgage in New South Wales was about $750,000, with an average interest rate of about 5.95 per cent.
In this typical example, the difference over the life of the loan amounts to about $27,000. It means these borrowers will end up paying an effective interest rate of 6.11 per cent.We checked the terms and conditions of each of the big four banks – Westpac, the Commonwealth, the National Australia Bank and the ANZ – as well as their biggest subsidiaries which include St George, The Bank of Melbourne, Bank SA and Bankwest.
But you have to look carefully. Or you could call customer service, as we did, and ask the bank to explain the calculation.We think the price quoted for a product should be the price that’s actually charged, as the law generally requires for products other than mortgages.
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