Do you know if your home loan rate is too high?

Your home loan rate is probably too high if you haven't reviewed it in the past year.

Most plumbers locked into loans during the rate rises are now sitting on rates well above what new borrowers are getting. The gap can be anywhere from 0.30% to 1.00% or more, which on a loan adds up quickly. If you're on a variable rate and you set up your loan more than 12 months ago, there's a decent chance you're overpaying.

What Rate Should You Actually Be Paying?

You should be paying within 0.20% to 0.30% of what new customers are being offered by your lender. Anything beyond that means you're funding the discount they're giving to someone else. Lenders price loans based on competition for new business, not loyalty. If you're an existing customer and you haven't pushed back, you're probably on a higher rate than you need to be.

Log into your loan account and check your current rate. Then look at what your lender is advertising for new customers with a similar loan size and deposit. If there's more than a 0.30% gap, you've got room to move. Don't compare your rate to the advertised rate on a loan with different features or a much larger deposit, that's apples and oranges.

The Plumber Who Found a 0.85% Gap

Consider a plumber working across the western suburbs who took out a variable loan a few years back. His rate had climbed over time and he assumed that was just what happened when the Reserve Bank moved. He checked his loan statement and saw he was paying 6.64%. His lender was advertising 5.79% for new customers on the same product.

He called his lender direct, asked them to match the advertised rate, and they dropped it to 6.19%. Still a 0.40% gap. He came to us, we ran the numbers with two other lenders, and within three weeks he was on 5.69% with one of them. On his loan size, that 0.95% drop cut his repayments by over $600 a month. He didn't change his loan structure, didn't add features he didn't need, just moved to a lender that wanted his business.

When Your Lender Says No

Your lender will sometimes reduce your rate if you ask, but they'll rarely match what a new customer gets unless you're prepared to walk. Most retention teams have limited room to move, particularly if you're with a major bank. They'll offer you 0.10% or 0.20% and call it a win. That might close half the gap, but it still leaves you paying more than you should.

If they won't move enough, the answer is refinancing to a new lender. Switching lenders resets you as a new customer, which means you get access to the sharp rates they're using to compete. It also gives you leverage to negotiate again down the track, because you've shown you're willing to move.

What It Costs to Switch

Switching lenders costs between $500 and $1,500 in most cases, depending on whether your current lender charges a discharge fee and what the new lender charges for valuation and settlement. Some lenders waive application fees or cover your valuation cost as part of a refinance offer, which brings the total down.

If you're on a fixed rate, you may also face break costs. These apply when you exit a fixed rate early and the lender's cost of funds has changed since you locked in. Break costs can be anywhere from zero to several thousand dollars depending on how much rates have moved and how long is left on your fixed term. Get the break cost figure in writing from your lender before you make a decision. If the break cost is higher than the total saving over the next 12 months, it's usually worth waiting unless you're refinancing for other reasons like accessing equity or consolidating debt.

How Much You'll Actually Save

A 0.50% reduction on a $500,000 loan saves you roughly $210 a month. Over a year, that's over $2,500. A 1.00% reduction doubles it. Those numbers assume you don't change your repayment amount, if you keep paying what you were paying before the rate drop, the extra goes straight off your principal and you'll cut years off your loan term.

The saving depends on your loan size and the size of the rate gap. Refinancing makes sense when the annual saving is at least five times the cost of switching. If it costs you $1,000 to refinance and you're saving $3,000 a year, that pays itself off in four months. If you're saving $500 a year, it'll take two years to break even, and by then rates may have shifted again.

Fixed Rate or Variable After You Refinance

Variable rates give you flexibility to make extra repayments and access offset accounts, which matters if your income fluctuates or you want to park cash and reduce interest. Fixed rates lock in certainty but limit your ability to pay down the loan faster. For most plumbers, variable makes more sense unless you've got a specific reason to lock in, like a planned period of lower income or a strong view on where rates are heading.

If you're refinancing and you want to split between fixed and variable, that's an option, but it adds complexity. You'll have two loan accounts, two sets of terms, and less flexibility on the fixed portion. It can work if you want some certainty without losing the ability to make extra repayments, but don't do it just because it sounds clever. Stick with what suits your actual cashflow and plans.

What You'll Need to Refinance

You'll need recent payslips if you're on the books, or tax returns and financials if you're self-employed. Most lenders want two years of financials for self-employed borrowers, though some will accept one year if your income is strong and consistent. You'll also need a current valuation of your property, which the lender usually organises, and details of your existing loan including current balance and rate.

If your income has dropped since you took out your original loan, that can limit your options. Lenders assess your ability to service the new loan based on your current income, not what you were earning three years ago. If you're borrowing close to your limit, a lower income might mean you don't qualify for the same loan size, even though you're already paying it. That's where working with a broker helps, because some lenders assess income differently, particularly for tradies with variable earnings.

When It's Not Worth Switching

Refinancing doesn't make sense if your loan balance is under $150,000 and the rate gap is less than 0.50%. The dollar saving is too small to justify the time and cost. It also doesn't make sense if you're planning to sell within the next 12 months, because you won't recover the switching costs before you exit the loan.

If your current lender offers you a rate within 0.10% of what you'd get elsewhere, it's usually not worth the effort to move. The difference in repayments will be minimal, and you'll avoid the hassle of setting up a new loan, updating your direct debits, and dealing with settlement. Push your current lender as hard as you can first, and only refinance if the gap is worth the effort.

What Happens Next

Call one of our team or book an appointment at a time that works for you. We'll pull your current loan details, check what you're paying, and run the numbers across the lenders we work with. If there's a better rate available, we'll walk you through the costs, the timeline, and what you'll save. If your current rate is already sharp, we'll tell you that too. No point moving for the sake of it.

Frequently Asked Questions