If you're sitting on a rate above 6%, there's a fair chance you're paying more than you need to. Lenders don't automatically drop your rate when they cut their advertised rates, and plenty of borrowers around Georgetown are still locked into rates that were competitive two or three years ago but have been left behind since.
How to Tell if Your Rate Is Too High
Your rate is too high if it sits more than 0.30% above what new borrowers are currently being offered by your lender for the same loan type. Log into your online banking and check your current rate, then compare it against the advertised rates on your lender's website for new customers. If there's a gap of more than 0.30%, you're paying a loyalty penalty.
Consider someone with a $450,000 variable rate loan at 6.45%. If their lender is now advertising 6.09% for new customers on the same product, they're paying an extra $135 per month just for staying put. Over a year, that's $1,620 going straight to the bank for no reason other than inertia.
Why Lenders Don't Lower Your Rate Automatically
Lenders make more profit from existing customers who don't ask questions. When the Reserve Bank changes the cash rate, most lenders pass on the movement to variable rate borrowers, but they rarely adjust the margin they charge on top of the cost of funds. That margin is where the real profit sits, and it tends to widen over time for customers who don't push back.
Your lender would prefer you didn't notice. They send statements, they update your online banking, but they don't send a letter saying "you're now paying $140 more per month than our new customers." It's legal, it's common, and it's one of the main reasons people use a mortgage broker instead of dealing directly with the bank.
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Fixed Rate Break Costs: How the Calculation Works
If you're on a fixed rate and want to refinance, you'll likely face break costs. These are calculated based on the difference between your fixed rate and the lender's current cost of funds for the remaining fixed period. The larger the gap and the longer the remaining term, the higher the cost.
As an example, someone in Georgetown with two years left on a 5.89% fixed rate might face break costs of $8,000 to $12,000 if current fixed rates have dropped to 5.40%. The lender is compensating itself for the interest it would have earned if you'd stayed. In some cases, the break cost is worth paying if the rate reduction on a refinance saves you more over the remaining loan term, but the numbers need to be worked through properly before you make a move.
What It Costs to Switch Lenders
Refinancing typically costs between $1,200 and $2,000 in discharge fees, settlement fees, and valuation costs. Most lenders don't charge application fees anymore, and some will cover your valuation or offer a cashback to offset the upfront costs. The real question is whether the rate reduction covers those costs within the first 12 months.
If switching from 6.45% to 6.09% on a $450,000 loan saves you $1,620 per year, and it costs you $1,500 to refinance, you're ahead after 11 months. After that, the saving keeps adding up. If your loan is smaller or the rate difference is tighter, the breakeven point shifts, and it might not be worth the effort.
When Staying Put Makes More Sense
Not every high rate justifies a refinance. If you're planning to sell within the next 18 months, the time and cost involved in switching lenders won't pay off. If your loan balance is below $200,000 and the rate difference is under 0.40%, the dollar saving may not clear the threshold once you factor in the application effort and settlement costs.
You also need to consider your current loan features. If you've built up a large offset balance or have unlimited extra repayments with full redraw, make sure the new loan offers the same flexibility. A lower rate that comes with a basic variable product and no offset might cost you more in lost interest savings than you gain from the rate cut.
Rate Comparison: What to Look For
When comparing rates, focus on the comparison rate as well as the advertised rate. The comparison rate includes most ongoing fees and gives you a clearer picture of the true cost. A loan advertised at 6.09% with a $395 annual fee might have a comparison rate of 6.15%, while another lender at 6.14% with no annual fee comes in at 6.14% on both measures.
Also check whether the rate you're looking at is a honeymoon rate that reverts after 12 months, or a standard variable rate that holds. Some lenders advertise sharp introductory rates to win new customers, then bump you onto a higher revert rate once the honeymoon ends. You want a loan that's still competitive after the first year, not one that puts you back in the same position 18 months from now.
How a Mortgage Broker Can Help You Cut Your Rate
A mortgage broker can tell you within one conversation whether your rate is out of line and what your options are. They'll compare your current loan against 30 or 40 lenders, work out the real cost of switching, and handle the application if the numbers stack up. If your current lender is competitive and there's no saving to be made, they'll tell you that too.
Brokers also have access to rates that aren't advertised to the public. Some lenders offer lower rates or better cashback deals through the broker channel, and those can tip the balance when you're deciding whether to move. If you're time-poor or you've never refinanced before, using a broker cuts out most of the back-and-forth and makes sure you're not leaving money on the table.
Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your current loan, show you what's available, and give you a straight answer on whether it's worth making a move.
Frequently Asked Questions
How do I know if my interest rate is too high?
Check your current rate against what your lender advertises for new customers on the same loan type. If the gap is more than 0.30%, you're likely paying more than you need to. A quick comparison will show whether refinancing makes sense.
What are break costs and when do they apply?
Break costs apply when you exit a fixed rate loan early. The lender charges a fee based on the difference between your fixed rate and their current cost of funds for the remaining term. The fee can be significant if rates have dropped since you fixed.
How much does it cost to refinance to a new lender?
Refinancing typically costs between $1,200 and $2,000 in discharge, settlement, and valuation fees. Some lenders offer cashback or cover certain costs, which can reduce your upfront outlay. The key is whether the rate saving pays back those costs within 12 months.
When is it not worth refinancing?
If you're planning to sell within 18 months, have a small loan balance under $200,000, or the rate difference is minimal, refinancing may not cover its own costs. Also consider whether you'd lose features like an offset account that's saving you interest.
What does a mortgage broker do when comparing rates?
A broker compares your current loan against rates from 30 to 40 lenders, calculates the real cost of switching, and handles the application if it makes financial sense. They also access rates not advertised publicly, which can improve your outcome.
