Lenders often save their sharpest rates for new customers, so people who've had the same loan for a few years can end up paying more than someone walking in the door today. It's sometimes called the loyalty tax. If you haven't looked at your loan in a couple of years, it's worth fifteen minutes to check.
Find your actual interest rate
Look up the rate on your latest statement or in your banking app. It may not be the rate you remember signing up for, because it has probably moved a few times since. Write it down.
Check what your bank offers new customers
Look up your bank's advertised rate for a new customer with a similar loan size and deposit. If that rate is lower than the one you're paying, the difference is what staying put is costing you.
What the gap costs. On a $600,000 loan, every 0.25% is roughly $1,500 a year in interest, so a 0.5% gap is about $3,000 a year. Run your own numbers in the repayment calculator: enter your balance at your current rate, then at the lower rate, and compare.
Check the rest of the market
Your bank's new-customer rate is only one comparison. There are more than 60 lenders on my panel, and some of the sharpest rates come from lenders you may not have heard of. They're all bound by the same responsible lending laws. Comparing them is my job, and it costs you nothing.
Look at the fees and features you're paying for
- Package fees. Often around $400 a year. Worth it if you use the offset and the rate discount, money down the drain if you don't.
- Offset accounts. If you have one, make sure your savings are actually in it. Interest earned in a savings account is taxed, while money in an offset reduces the interest on your home loan, so the offset usually comes out ahead.
- Redraw or offset. Either is fine, as long as you know which one you have and how it works.
- Interest only. If you're on interest only without a clear reason, you aren't paying the loan down.
Make the call, or have me make it
If you've found a gap, there are three ways to close it:
- Ask your bank for a better rate. Tell them you're considering refinancing and ask what they can do. It often works, because retention teams can offer discounts the front line can't. They'll usually offer enough to keep you, which isn't always the best rate available.
- Ask them to match a specific offer. It's harder to say no to a real number.
- Have me compare the market. I'll check more than 60 lenders, including yours, and tell you whether repricing or refinancing comes out ahead after any switching costs. Sometimes the answer is that your loan is fine, and I'll tell you that too.
Signs your loan is due for a review
- You haven't reviewed it in two years or more
- Your fixed rate is about to end, since the rate it rolls onto is usually higher than what new customers are offered
- Your property has gone up in value, because a lower loan-to-value ratio can qualify you for a better rate
- Your income or situation has improved since you applied
- You're paying a package fee for features you don't use
