What profit is the bank making from your mortgage?

Here’s a topic I don’t like to think about too much, but I couldn’t resist reading a weekend article in The Daily Telegraph talking about banks and their profits – and in particular how much profit banks make on home loans. Now, I obviously know that banks aren’t so kind as to simply want to help me out with my quest to own a home and/or investment property, but I have to admit that the figures suggested by this article did make me wonder why banks have got so stingy they don’t even give out free money boxes with kids’ accounts any more! (Well, not last month when I signed up my little boy for his first bank account – I was a little disappointed!).

In any case, the story with home loan profits goes that somewhere between 1.8 and 2.1 per cent from the average variable interest rate is “pure profit” for the banks – in other words, that is actual money they get even after all their overheads and expenses for providing your mortgage are taken into account. The percentage might sound relatively small but the amounts get large quickly. Take an average $300,000 home loan with interest rates around what the average is now – 7.8 per cent – and this means that over the life of the loan, your bank will make a $150,000 profit. Not bad for just giving you some money and administering monthly repayments!

The even more frustrating part for me, as an home loan holder, is that as interest rates rises, the profits of the bank rise with them. This seems inherently unfair, as I would like to think my bank (and all banks) would try to minimise the additional payments their customers have to make – we are all just regular people after all – but no, they actually make *more* cash when we are forced to scrape our pennies together to pay more. But what alternative do we have – it would take a lot of years of saving money under the mattress to be able to afford our own house!

One thought on “What profit is the bank making from your mortgage?

  1. So, what came of all the political talk over the last two years, for example

    “We need to have a competitive mortgage market so that people out there who are under financial pressure can get a fair go,” Treasurer Wayne Swan

    “The release of the review is another milestone in the implementation of the account switching initiatives I announced in February to boost competition in the banking sector,” Wayne Swan

    Years of innaction but plenty of talk talk talk while Australians suffer suffer suffer….

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