Is Your Interest Rate High & What You Can Do About It

Is Your Current Interest Rate Actually High?

Your rate is high if it sits more than 0.30% above what lenders are currently offering to borrowers with similar deposit sizes and property types. A difference of 0.50% or more means you're almost certainly paying more than you need to, and it's worth investigating a switch.

The issue is that most borrowers compare their rate to advertised headline figures without understanding comparison rates or the conditions attached. A 6.00% variable rate might look high, but if you're on an interest-only loan with offset features and your lender's current pricing for that product is 6.10%, you're not overpaying. On the other hand, if you took out a loan two years ago and haven't reviewed it since, there's a strong chance your rate has crept up through loyalty tax while new customers are being offered lower entry rates.

Consider a borrower in Auburn who took out a home loan in early 2023 at 5.80% variable. That rate may have since increased to 6.40% or higher through official rate rises, while new borrowers with the same lender are being offered 6.10% for an equivalent product. That gap of 0.30% on a $500,000 loan adds roughly $1,500 per year in interest. Over five years, that's $7,500 in avoidable costs.

How to Check If You're Overpaying

Call your current lender and ask for the rate they're offering new customers on a product identical to yours. If there's a gap of 0.20% or more, ask them to match it. Most lenders have retention teams that can adjust rates for existing customers, though they won't do it unless you ask. If they refuse or offer only a token reduction, that's your signal to look elsewhere.

You can also run a quick comparison using online tools or speak with a mortgage broker in Auburn who has access to live pricing across multiple lenders. The key is to compare like with like, meaning the same loan features, repayment type, and loan-to-value ratio. A slightly lower advertised rate on a basic variable loan with no offset account isn't useful if you rely on that offset to manage cash flow.

What Refinancing Actually Costs

Refinancing involves discharge fees from your current lender, application fees with the new lender, and potentially valuation or legal costs. Discharge fees typically range from $300 to $500. Application fees vary, with some lenders waiving them to attract new business. Valuation costs depend on the property but usually sit between $200 and $400.

If you're on a fixed rate and want to exit early, break costs can apply. These are calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed period. If rates have risen since you fixed, break costs are usually zero. If rates have fallen, break costs can run into thousands of dollars. Your lender is required to provide a break cost estimate on request, and you should get that figure before making any decision.

For borrowers considering refinancing, the total upfront cost is often between $1,000 and $2,000, though this can be higher if break costs apply. The calculation is straightforward: if switching lenders saves you $2,000 per year in interest and costs $1,500 upfront, you're ahead after nine months. If you plan to hold the loan for several more years, the savings compound.

When Refinancing to Reduce Your Rate Makes Sense

Refinancing makes sense when the annual interest saving exceeds the upfront cost within 12 to 18 months. It also makes sense when your current lender refuses to negotiate and you're paying a loyalty premium.

In our experience, borrowers in Auburn who purchased investment properties or upgraded homes in the past few years often find their rates have drifted higher without them noticing. Lenders increase variable rates incrementally, and after several adjustments, the gap between what you're paying and what's available elsewhere can widen significantly.

As an example, a borrower with a $600,000 home loan at 6.50% who refinances to 6.00% will save roughly $3,000 per year in interest. If the refinance costs $1,200 upfront, they break even in under five months. Over the remaining life of the loan, the cumulative saving can reach tens of thousands of dollars, depending on how long they hold the property.

Fixed Versus Variable After Refinancing

Variable rates give you flexibility to make extra repayments and access offset accounts, which can be valuable if you have irregular income or want to reduce interest over time. Fixed rates lock in certainty but often come with restrictions on extra repayments and no offset functionality.

If you're refinancing to reduce your rate, the choice between fixed and variable depends on your cash flow and risk tolerance. Variable rates are currently lower than most fixed options, but that can change. Some borrowers split their loan, fixing a portion for stability and keeping the rest variable for flexibility. That approach works well when you want to protect against future rate rises but still have the ability to pay down the loan faster when funds are available.

For borrowers nearing the end of a fixed term, reviewing your options before the fixed period expires is critical. Once you roll onto a standard variable rate, you'll often be placed on a higher rate than what's available to new customers. Planning the switch a few months in advance gives you time to compare offers and avoid the automatic rollover. You can learn more about managing this transition through our fixed rate expiry service.

Rate Cuts and Auburn's Property Market

Auburn's property market includes a mix of older detached homes, townhouses, and newer apartment developments, which means borrowing needs and rate structures vary. Borrowers with units in newer developments may face different lending criteria than those with standalone homes on larger blocks, and that can affect the rates lenders are willing to offer.

If you're refinancing an apartment in Auburn, some lenders apply stricter loan-to-value ratios or higher interest rate margins due to perceived oversupply risk in certain precincts. Others treat Auburn as part of the broader Parramatta region and price accordingly. That's where working with a broker who understands the local market and lender appetite can make a tangible difference in the rate you're offered.

Should You Switch Lenders or Negotiate?

Start by negotiating with your current lender. If they agree to match the market rate, you avoid the upfront cost and effort of refinancing. If they refuse or offer only a minimal reduction, switching is usually the better option.

Lenders count on inertia. They know most borrowers won't take the time to compare rates or challenge their current deal. The moment you pick up the phone and ask for a rate review, you're already ahead of the majority. If your lender values your business, they'll make an offer. If they don't, someone else will.

For borrowers who want a thorough comparison without the time commitment, a mortgage broker can run the numbers, present options from multiple lenders, and handle the application process. The service is typically free to the borrower, with the broker paid by the lender on settlement. The trade-off is that you're not limited to one lender's retention offer and can compare the full market.

How Much You Could Save by Refinancing

The saving depends on the gap between your current rate and what's available, the size of your loan, and how long you plan to hold it. A 0.50% reduction on a $400,000 loan saves roughly $2,000 per year. On a $700,000 loan, the same reduction saves around $3,500 annually.

Those figures assume you're making principal and interest repayments. If you're on an interest-only loan, the saving is slightly higher in percentage terms, though you're not reducing the principal. Either way, the cumulative impact over several years is significant, particularly if you redirect the saving into extra repayments or use it to offset other expenses.

You can estimate your potential saving using online calculators, but the most accurate figure comes from getting a rate offer based on your actual loan amount, deposit size, and property type. Generic estimates don't account for lender-specific pricing or the features you need, so they're useful as a starting point but not a final answer.

Call one of our team or book an appointment at a time that works for you to review your current rate and explore whether refinancing could reduce your repayments.

Frequently Asked Questions