The Hidden Cost of Home Loans too few of us know about
In today's market, banks could typically pay us approximately 2.50% on our Term Deposits and charge us approximately 4.50% on our home loans.
That's an interest margin to cover their costs and all the risks of approximately 2.00% per annum.
This may sound like a lot but our biggest and best banks certainly have a lot of costs associated with providing the Australian community with a strong financial system, a wide product range, and customer service - either in branches, online or over the phone via call centres.
In Australia, around 55% of all new home loans are originated for our Banks by Mortgage Brokers. The reality is that this form of home loan origination comes at a significant cost to Banks, a cost which is subsequently borne by consumers.
In a lot of cases, a Mortgage Broker may command a front end fee of up to 0.60% and a trail commission of up to 0.35% per annum. All of a sudden, the Bank's 2.00% interest margin is now down to 1.05%. A number of formal enquiries and investigations in Australia continue to examine these costs and other less obvious costs such as those described in this recent article in Mortgage Business.
Current mortgage broker upfront fees and trail commission levels can represent an excessive cost in the home loan value chain. Joust provides a much lower cost of origination for Banks - charging a one-off Success Fee of 0.20%.
So the result of Joust's much lower fee structure in this example is that it would leave our Banks with approximately 1.80% of interest margin in order to offer more aggressive pricing to good home loan customers in Australia. Just imagine if our Banks were earning 1.15% interest margin (instead of 1.05% under the Mortgage Broker model) and be in a position to pass on up to 0.65% of margin back to the Australian customers who deserve it. This improved margin position can empower banks to offer high-quality home loan consumers significantly lower interest rates.
This is why Joust was formed and what continues to drive the team at Joust. The un-matched transparency of the Joust Home Loan market place is so much more than a home loan comparison site or an on-line broker. Joust matches some of the best home loan lenders in Australia with good customers and is the new, logical way to refinance your current mortgage or begin your search to find the best home loan rates available.
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