Unbelievable profit the Big Four banks are making on your mortgage: ‘Massive’

Australia’s big banks are making a profit of $200,000 on the average mortgage but are still cutting operating costs by closing branches and removing ATMs, a new report has found.

Thirty years from now, the Big Four banks would make $200,800 in profits on an average mortgage of $574,200 – even after interest payments.

This resulted in a profit margin of 35 percent.

Greg Jericho, the chief economist at think tank The Australian Institute, said borrowers were coming under pressure as the big banks continued to dominate the home loan market.

“The Big Four generate huge profits from home loans that far exceed the level of risk the banks take on,” he said.

The Australia Institute report assumed an average mortgage size of $574,200 in the six months to July and calculated that the big four banks – Commonwealth, Westpac, ANZ and NAB – would typically make a profit of $9,130 ​​in the first year.

This came to $761 per month or $176 per week.

The think tank looked at the profit on home ownership loans, subtracting interest charges and bad and doubtful debts from the average interest charges on a mortgage, along with the cost margin or the cost of providing the loan.

Even at a lower variable rate of 5.79 percent on a $574,200 mortgage, a borrower would pay $637,373 in interest over 30 years.

Total loan repayments over three decades would amount to $1,211,573 – including principal and interest – with banks aligning their variable interest rates with movements in the Reserve Bank of Australia’s cash rate.

The Australia Institute calculated a profit of $200,800 on this mortgage after the banks deducted the costs of originating the mortgage from the interest charges.

Over the term of an average mortgage, this amounted to 35 percent of the principal amount.

“Australian banks are highly profitable by world standards,” the report said.

‘The background to this research is the suggestion that Australia’s business community has contributed to the cost of living through price gouging.’

Commonwealth Bank, Australia’s largest home lender, made a net cash profit of $9.836 billion in the last financial year.

In addition, CEO Matt Comyn also paid a compensation package of $8.977 million, with bonuses on top of his $2.5 million base salary.

Over 30 years, the Big Four banks would make $200,800 in profits on an average mortgage of $574,200 – even after interest payments (stock image)

The Big Four banks made a combined profit of $30.7 billion after tax in the 2023-2024 financial year.

Despite this, they have continued to close branches and remove ATMs.

The number of bank branches across Australia fell 41 per cent to 3,360 in June 2024, compared to 5,694 in June 2017, data from the Australian Prudential Regulation Authority shows.

The number of ATMs has more than halved, from 13,814 to just 5,476. Reserve Bank data shows that only 13 percent of personal transactions are now done in cash.

However, profitable banks are more likely to offer better deals because they can afford it.

“That indicates significant room for negotiation,” the Australia Institute said.

NAB on Thursday cut the variable interest rate by 40 basis points, to 6.44 percent for owner-occupiers, even with a small down payment of just 5 percent.

But this was far from the lowest rate, with ANZ offering 6.14 per cent interest for refinancing borrowers with a 20 per cent deposit and the Commonwealth Bank charging 6.15 per cent interest.