Bank Mortgage Lending Margins


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Banks make some of their profits on the differences between how much they pay to borrow money, and the amount they charge the home owner as the mortgage rate.

The difference between these two rates is their margin.

I found it very interesting to see how that margin has changed during this century, in Australia, by comparing the Reserve Bank official cash rate to Bank Mortgage statements showing the actual rate charged for an average size loan.

    Date RBA Cash Rate Actual Mortgage rate Margin
    1-Jan-03 4.75% 6.07% 1.32%
    5-Nov-03 5.00% 6.32% 1.32%
    3-Dec-03 5.25% 6.57% 1.32%
    1-Jan-04 5.25% 6.57% 1.32%
    2-Mar-05 5.50% 6.82% 1.32%
    3-May-06 5.75% 7.07% 1.32%
    2-Aug-06 6.00% 7.32% 1.32%
    8-Nov-06 6.25% 7.57% 1.32%
    8-Aug-07 6.50% 7.82% 1.32%
    7-Nov-07 6.75% 8.07% 1.32%
    6-Feb-08 7.00% 8.52% 1.52%
    5-Mar-08 7.25% 8.77% 1.52%
    3-Sep-08 7.00% 9.07% 2.07%
    8-Oct-08 6.00% 7.97% 1.97%
    5-Nov-08 5.25% 7.14% 1.89%
    3-Dec-08 4.25% 6.29% 2.04%
    4-Feb-09 3.25% 5.29% 2.04%
    8-Apr-09 3.00% 5.19% 2.19%
    7-Oct-09 3.25% 5.44% 2.19%
    4-Nov-09 3.50% 5.69% 2.19%
    2-Dec-09 3.75% 6.08% 2.33%
    3-Mar-10 4.00% 6.33% 2.33%
    7-Apr-10 4.25% 6.58% 2.33%
    5-May-10 4.50% 6.83% 2.33%

It appears that the Banks have increased their margin by a considerable figure, rising by 76.5% from 1.32% up to 2.33%

It may be though that their borrowing costs are now actually higher than the RBA rate. This is something that I have heard mentioned a number of times in the news.

I have also heard that the previous Liberal treasurer kept a tight reign on the banks, whilst the new Labour one holds very little control over them.


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It may be a co-incidence that the margin began to increase within 2 months of the government change.

However, I doubt this would change back with any changes to a current government in the 2010 election. Peter Costello, the previous Liberal treasurer is no longer in that position.

Details of these margin rates are also at: britzinoz.com/../forum

This following chart shows a calculation of annual Interest costs on a $280,000 mortgage, showing both the Actual Mortgage rate from bank statements and the RBA rate as a comparison.

    Year Mortgage Rate RBA Rate
    2000 $20,302.84 $16,596.71
    2001 $17,868.60 $14,172.60
    2002 $16,455.18 $12,759.18
    2003 $17,160.93 $13,464.93
    2004 $18,446.40 $14,740.27
    2005 $18,980.93 $15,284.93
    2006 $19,957.10 $16,261.10
    2007 $21,581.48 $17,885.48
    2008 $23,383.15 $18,731.23
    2009 $15,233.15 $9,180.55
    2010 $18,585.10 $12,061.10

You can see when comparing the amount paid in 2002 and the amount paid in 2010, (assuming no more rate changes), that the 2010 actual Mortgage Interest amount has dropped by only 8.46%, even though the official cash rate has dropped by 27.33%.

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