Is My Home Loan Rate Too High? How to Know

Your home loan is probably costing you more than it should.

Most lenders rely on customers not checking their rate after the first few years. Variable rates for existing customers often sit 0.50% to 1.20% above what the same lender offers new borrowers. For a $600,000 loan, that difference means paying an extra $3,000 to $7,000 each year in interest you don't need to be paying.

Compare Your Rate Against Current Market Offers

Your current rate is too high if it sits more than 0.30% above what similar borrowers are getting today. Log into your home loan account and find your current interest rate, then compare it to what lenders are advertising for new customers with your deposit size and loan purpose. If you're paying 6.20% and seeing advertised rates around 5.80% for owner-occupiers with a similar loan-to-value ratio, you have a clear case for refinancing.

In Ormond, where the median house price sits around $1.6 million, many homeowners who bought during the pandemic on low rates have since rolled onto higher variable rates without realising how much the gap has widened. Consider someone with a $900,000 loan who secured a rate of 2.10% in late 2021. When that fixed period ended, their lender moved them to a variable rate of 6.50%. Meanwhile, new customers at other lenders were accessing rates from 5.90% to 6.10%. That 0.40% to 0.60% difference amounts to $3,600 to $5,400 annually.

When Your Repayments Have Increased Without Explanation

Your rate is too high if your monthly repayments have climbed significantly beyond what you'd expect from standard rate rises. All lenders increased rates over the past two years as the Reserve Bank moved, but not all increased by the same amount or at the same pace.

Some borrowers in Ormond who've held their loans for five years or more are now on what's called a loyalty tax rate, sitting well above both advertised rates and what they'd qualify for if they switched lenders. If your repayments have increased by more than $800 per month on a $700,000 loan since your fixed rate ended, and you haven't checked what you'd pay elsewhere, you're likely paying more than necessary. A loan health check shows exactly where your current rate sits compared to what's available.

Fixed Rate Expiry Leaves Many Borrowers Exposed

The moment your fixed rate ends, your lender moves you to their standard variable rate unless you actively request something different. Standard variable rates for existing customers typically sit between 6.30% and 6.80%, while new customer rates range from 5.80% to 6.30% depending on your deposit and circumstances.

If you're approaching a fixed rate expiry or have already rolled off in the past 12 months, your lender won't automatically give you their most competitive offer. They'll move you to whatever rate applies to your loan type, which is almost always higher than what you'd receive by refinancing to a new lender or renegotiating your current arrangement. Ormond homeowners with investment properties face an even wider gap, as investor rates for existing customers can sit 0.80% to 1.50% above new customer offers.

The Cost of Switching Versus the Cost of Staying

Refinancing will cost you between $1,200 and $2,500 in discharge fees, application fees, and valuation costs. Your existing lender may also charge break costs if you're leaving a fixed rate early, though these don't apply once your fixed period has ended. If switching lenders would reduce your rate by 0.40% on a $700,000 loan, you'd save approximately $2,800 in the first year alone, covering the switching costs and then continuing to save each subsequent year.

In our experience, most borrowers who haven't reviewed their loan in three or more years will find enough of a rate reduction to justify refinancing within six to eight months. The calculation changes if you're planning to sell within the next year or if your loan balance has dropped below $250,000, where the effort and costs may outweigh the savings. A mortgage broker can run the numbers based on your specific loan balance, remaining term, and the rates you'd qualify for.

Your Lender Won't Tell You When Your Rate Is High

Lenders have no obligation to notify you when better rates become available or when your rate has drifted above market. They'll send you statements showing what you're paying, but they won't compare that figure to what new customers receive or what their competitors offer.

Consider someone in Ormond with an $800,000 home loan who's been with the same lender for seven years. Their rate has gradually increased to 6.60% through a combination of Reserve Bank movements and their lender's own adjustments. They assume all lenders have made similar changes. In reality, they could access rates from 5.95% to 6.20% by switching, saving between $3,200 and $5,200 annually. The only way to know is to actively compare your current situation against what's available.

If you haven't reviewed your home loan in the past 18 months, particularly if you've rolled off a fixed rate or noticed your repayments climbing, there's a strong chance you're paying more than you need to. We regularly see rate reductions of 0.40% to 0.80% for Ormond residents who take the time to compare their existing loan against current offers. The difference between reviewing your rate and ignoring it can amount to tens of thousands of dollars over the life of your loan.

Call one of our team or book an appointment at a time that works for you to find out exactly where your rate sits and what you'd save by switching.

Frequently Asked Questions