Top Strategies to Check and Lower Your Home Loan Rate

Your home loan rate is high if your lender is offering a noticeably lower rate to new customers with a similar loan. The RBA cash rate is currently 4.85% p.a., but your rate depends on your lender, loan type, deposit size and when you took the loan out.

This article is for Eden Hill homeowners who suspect they are paying too much and want a clear way to test it before deciding whether to switch.

How Do You Know If Your Home Loan Interest Rate Is High?

Your rate is high when other lenders advertise a lower rate for a loan like yours, or when your own lender offers a lower rate to new borrowers than it charges you. The gap between those two figures is the clearest signal.

Start with three checks:

• Find your current interest rate on your latest loan statement or in your online banking.
• Look at the rate your lender advertises today for new customers with your loan type and loan-to-value ratio.
• Compare both figures with rates from a few other lenders.

The RBA cash rate is a useful reference point, but lenders add their own margin, so it will not tell you what your rate should be. A loan that was priced well when you signed can drift behind over time, because many lenders reserve their sharpest pricing for new customers.

Comparison Rate vs Advertised Rate: Which One Should You Use?

Use the advertised rate to compare day-to-day cost and the comparison rate to see the effect of fees. The comparison rate folds standard fees and charges into a single figure based on a set loan size and term, so it can show when a low headline rate hides ongoing costs.

It has limits. It is calculated on a standard loan amount and term, so your own situation may differ. A loan with an offset account or extra features may charge a higher fee, and that may suit you if you use those features. Check what you will actually use before choosing on rate alone.

What a Lower Rate Looks Like in Dollars

A small rate difference can change your monthly repayment by a few hundred dollars over a few months. The figures below are illustrative only and use an example rate of 6.75% p.a.

Consider a homeowner in Eden Hill with a $500,000 balance and 30 years left on a variable loan. At 6.75% p.a., the principal and interest repayment is roughly $3,243 a month. The homeowner checks the market and finds a lender offering 6.25% p.a. on a comparable loan. At 6.25% p.a., the repayment on the same balance and term is roughly $3,079 a month.

That is a saving of about $164 a month. The homeowner then adds up the switching costs, including any discharge fees from the old lender and any application fees from the new one. Dividing that total by $164 shows how many months it takes to recover the cost. The homeowner decides the switch is worth it if they plan to keep the loan well beyond that point, and asks the new lender for a lower rate on the same balance.

The trade-off is the term. If the new loan restarts at 30 years when only 25 remained, repayments fall but the loan runs longer. Keeping the original remaining term avoids that. You can test your own numbers with our mortgage repayment calculator.

Ask Your Current Lender First

Asking your current lender for a lower rate is a legitimate first step, and the request itself is free. If the lower rate requires moving to a different product, ask whether a switching fee applies before you accept. Some lenders will reduce your rate to keep you, while others will not move.

Have a competing offer ready, because it gives you a concrete figure to point to. If your lender declines or offers only a small cut, you have lost nothing and you know where you stand. The risk is that an offer which looks like a concession may still sit above what new customers receive elsewhere, so compare it with the market before accepting.

Refinance Home Loan Costs: Break Costs, Exit Fees and Discharge Fees

Switching lender can involve discharge fees, application fees and, on a fixed loan, break costs. These can reduce or cancel out your saving, so work them out before you apply.

Discharge fees are charged when your old loan is closed. Break costs apply if you leave a fixed rate before it ends, and they depend on how rates have moved since you fixed and how long remains on the term. They can be large, so ask your lender for a written estimate. If your fixed term is close to ending, waiting may be cheaper, and our fixed rate expiry page explains your options at that point.

A new lender may offer a cash contribution toward switching costs, but those offers often come with conditions, such as a minimum loan size or a requirement to stay for a set period. Read those conditions before relying on them.

When Switching Lender Is Worth It

Switching lender is worth it when the monthly saving, over the time you expect to keep the loan, clearly exceeds the total switching costs. It is less likely to suit you if your balance is small, your fixed term is about to end, or your finances have changed since you took the loan.

Your borrowing position also matters. A new lender will assess your income, debts and property value afresh, so a change in employment or other debts can affect the rate you are offered. A loan health check reviews your current loan against what is available, and our refinancing page outlines how the process works from application to settlement.

A mortgage broker can compare lenders for you and explain the costs on each side, so you see the full picture before committing.

Questions to Ask Before You Refinance

Before you commit, ask what the total switching costs are, whether the new rate is ongoing or an introductory offer, and whether the loan features you use today will carry over. Introductory rates can revert to a higher rate later, so check what the rate becomes after any discount period ends.

Also ask whether you are keeping your current remaining term. Choosing a longer term lowers repayments but can increase the total interest you pay over the life of the loan.

If you want a clear answer on whether your rate is high, call one of our team or book an appointment at a time that works for you. We will review your loan, compare it with the lenders available, and show you the numbers before you decide.

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