Your current rate is too high if it sits more than 0.30% above what you could access today with the same loan size, property type, and deposit.
That margin covers the typical cost of switching lenders over a two-year period, which means anything beyond it represents money you're losing each month. The calculation isn't complex, but it does depend on knowing what rate you'd actually be approved for right now, not just the advertised rate on a comparison site.
What does a rate difference actually cost you?
A 0.50% gap on a loan of $450,000 costs around $188 per month or $2,256 per year. Over five years, that's more than $11,000 in additional interest, assuming rates remain steady. The impact grows with loan size. A similar gap on a $600,000 loan increases the annual cost to around $3,000.
These figures assume you're comparing like for like: variable to variable, or fixed to fixed, with the same repayment structure. A rate that looks high on a basic variable loan might be justified if it includes offset functionality or flexible repayment options that reduce interest over time.
How do you find out what rate you'd be approved for?
You won't know by checking advertised rates alone. Lenders price according to loan-to-value ratio, employment type, and whether the property is owner-occupied or an investment. A borrower with 30% equity in an owner-occupied property in Hillside will be offered a different rate to someone with 10% equity on an investment loan, even if both are applying to the same lender.
A loan health check involves submitting your current loan details and financial position to confirm what rate and structure you'd qualify for today. That includes checking whether your equity position has improved since you first borrowed, which often happens in areas where values have increased. Hillside has seen steady capital growth over the past decade, particularly in the Caroline Springs Boulevard precinct and around Brookside Shopping Centre, so homeowners who purchased several years ago may now have more equity than they realise.
When does the comparison rate matter more than the advertised rate?
The comparison rate includes ongoing fees and gives you a more accurate picture of what you'll actually pay. A lender advertising a variable rate at 6.00% with a $395 annual fee has a comparison rate around 6.08%. Another lender at 6.10% with no ongoing fee has a comparison rate closer to 6.10%, which makes it marginally cheaper over time despite the higher headline figure.
Comparison rates assume a loan amount of $150,000 over 25 years, so they become less useful for larger loans or shorter terms. For a borrower in Hillside with a $500,000 loan, the annual fee represents a smaller percentage of the total interest paid, which means the advertised rate carries more weight in the calculation.
What if you're still inside a fixed rate period?
Break costs apply when you exit a fixed rate early, and they can be substantial if rates have fallen since you locked in. The calculation is based on the difference between your fixed rate and the current wholesale rate for the remaining term, multiplied by your loan balance.
Consider a borrower who fixed at 5.50% two years ago with three years remaining on the term. If the equivalent wholesale rate is now 4.80%, the lender calculates the break cost based on that 0.70% gap across the remaining balance and term. On a $400,000 loan, that could mean a break cost in the range of $8,000 to $12,000, depending on the lender's formula. That cost would take several years to recover through a lower variable rate, so the switch rarely makes sense unless the fixed rate is significantly higher than current market levels. If your fixed rate is coming to an end soon, a fixed rate expiry review can clarify your options before you revert to a higher variable rate by default.
What other costs reduce your savings when switching lenders?
Discharge fees from your current lender typically sit between $300 and $500. Settlement fees and government charges for registering the new mortgage add another $800 to $1,200, depending on the state and loan size. Some lenders also charge application fees, though many waive these during promotional periods.
If your current loan has an offset account with a balance that reduces your interest, the new loan needs to offer the same feature or your effective rate increases. A borrower paying interest on $450,000 but holding $50,000 in offset is only paying interest on $400,000. Moving to a lower rate without offset might still cost more if the offset was reducing interest by more than the rate difference.
How often should you check whether your rate is still suitable?
Once per year is sufficient for most borrowers, unless your lender increases your rate outside the Reserve Bank cycle or your financial position changes. Lenders adjust their rates independently, and some increase margins during periods when the official cash rate holds steady. A rate that was fair when you signed may no longer be if your lender has lifted rates while others have held or reduced theirs.
A formal review also picks up changes in your equity position, income, or employment type that might qualify you for a better rate with your current lender. Many lenders offer retention rates to existing customers who ask, particularly if you've built equity or reduced your loan-to-value ratio since the loan was written. In our experience, borrowers who request a rate review with their current lender before approaching another often receive an offer that's within 0.10% to 0.20% of what they'd get by switching, which avoids the cost and process of refinancing entirely.
When does switching lenders make sense even if the rate difference is small?
A rate reduction isn't the only reason to move. If your current loan lacks offset functionality and you regularly hold surplus cash, the tax and interest benefits of an offset can outweigh a slightly higher rate. Similarly, if you're planning to purchase an investment property or undertake renovations, a lender with higher pre-approval limits or more flexible servicing policies may offer better long-term value than the lender with the lowest rate today.
Another scenario involves borrowers who've improved their credit profile or increased their income since the original loan was written. A borrower in Hillside who was self-employed with one year of financials at the time of purchase but now has three years of strong trading history will have access to a wider panel of lenders and lower rates than they did initially. The rate improvement in that case often exceeds 0.50%, and the refinance also resets the loan structure to match current needs rather than the situation at the time of purchase.
Call one of our team or book an appointment at a time that works for you to confirm what rate you'd be approved for today and whether the difference justifies the cost of switching.
Frequently Asked Questions
How much higher does my current rate need to be before refinancing is worth it?
A difference of 0.30% or more above what you could access today typically justifies refinancing, as this margin covers the cost of switching lenders over a two-year period. Anything beyond that represents ongoing interest you could avoid.
What does a 0.50% rate difference actually cost me?
On a $450,000 loan, a 0.50% difference costs around $188 per month or $2,256 per year. Over five years, that adds up to more than $11,000 in additional interest, assuming rates stay constant.
Can I find out what rate I'd be approved for without applying?
Yes, a loan health check involves reviewing your current financial position and property equity to confirm what rate you'd qualify for today. This doesn't require a formal application and helps you decide if refinancing is worth pursuing.
Do break costs make it impossible to exit a fixed rate early?
Break costs apply when you exit a fixed rate before the term ends, and they can be substantial if rates have fallen. The cost is based on the difference between your fixed rate and the current wholesale rate, multiplied by your remaining balance and term.
What other costs should I include when calculating refinance savings?
Discharge fees, settlement fees, and government charges typically add $1,100 to $1,700 to the total cost of switching lenders. You should also consider whether your current offset balance or loan features reduce your effective rate.
