How to Tell if Your Interest Rate is Too High

Most lenders won't send you a letter when your rate becomes uncompetitive. They rely on inertia, and it works. Thousands of borrowers across Kogarah and beyond are paying hundreds more each month than they need to simply because they haven't checked their rate against the current market.

If you took out your loan more than two years ago, or if you've rolled off a fixed rate recently, there's a strong chance you're now sitting on a rate that's higher than what new customers are being offered by the same bank. The difference can be anywhere from 0.30% to 1.00% or more, and that gap compounds every month.

What Rate Should You Actually Be Paying?

Your rate should sit within 0.20% to 0.30% of what new borrowers with similar deposit sizes and loan amounts are currently being offered. Any gap beyond that means you're subsidising discounts for new customers. Lenders don't reward loyalty. They price it as a revenue stream.

Consider a borrower in Kogarah who took out a variable rate loan three years ago at 4.50%. The same lender is now advertising rates starting from 5.80% for new customers, but existing customers on older products might be sitting at 6.20% or higher because their loan hasn't been repriced. That 0.40% difference on a loan of $600,000 adds up to around $2,400 a year in unnecessary interest.

To find out where you stand, pull your most recent loan statement and check the interest rate listed. Then compare it against current advertised rates for your loan type. Don't just look at your own lender. Check what other lenders are offering for the same loan-to-value ratio and features. If the gap is more than 0.30%, you're paying a loyalty tax.

Why Your Rate Climbs Without You Noticing

Banks increase rates in two ways. The first is the obvious one: official rate rises that get announced and apply across the board. The second is quieter. They introduce new loan products with lower rates and stop offering your older product to new customers. Over time, your product becomes uncompetitive, but you're never moved across unless you ask.

This happens most often after a fixed rate period ends. When your loan reverts to a standard variable rate, that rate is almost always higher than the discounted variable rates being advertised. The reversion rate might sit at 6.50% while new variable loans are priced at 5.90%. The bank isn't required to tell you this. They just start charging the higher rate.

We regularly see this with clients who call in to check their loan after noticing their repayments have increased. They assume it's because of rate rises across the market, but when we pull the numbers, their rate is sitting 0.60% to 0.80% above what they could access elsewhere. That's not market movement. That's product design.

How Much a High Rate Actually Costs You

An extra 0.50% on a $500,000 loan adds roughly $2,500 a year to your interest bill. Over five years, that's $12,500. Over ten years, it's more than $25,000. That's not accounting for the compounding effect of paying down your loan more slowly because more of each repayment goes to interest instead of principal.

The longer you stay on an uncompetitive rate, the more it costs you in two ways: higher repayments today and a longer loan term tomorrow. Refinancing to a lower rate doesn't just reduce what you pay each month. It shifts the balance of each repayment toward reducing your principal, which shortens the overall life of the loan if you keep your repayments steady.

In a scenario where a borrower with a $650,000 loan at 6.10% refinances to 5.60%, the monthly repayment drops by around $180. If they keep paying the original amount, they'll clear the loan faster and cut the total interest paid over the life of the loan significantly. The difference isn't trivial, and it accumulates silently every month you wait.

When Refinancing Makes Sense and When It Doesn't

Refinancing makes sense when the rate difference is large enough to outweigh the costs involved. Those costs typically include discharge fees from your current lender, application fees with the new lender, and valuation or legal fees. In most cases, if you're saving 0.40% or more and you plan to stay in the property for at least two years, refinancing will pay for itself within the first 12 to 18 months.

It doesn't make sense if you're planning to sell soon, if your loan balance is very small, or if your current loan has features you can't replicate elsewhere without paying for them. Offset accounts, redraw facilities, and flexible repayment options all matter. A lower rate on a rigid loan might cost you more in lost flexibility than you save in interest.

There's also the question of fixed versus variable. If you're currently on a fixed rate and want to refinance before the fixed period ends, you'll likely face break costs. These can run into the thousands, depending on how much time is left and how much rates have moved since you fixed. We can calculate whether those break costs are worth paying based on the rate difference and your remaining loan term. Sometimes they are. Often they're not. It depends on your specific numbers.

What to Do if You Think Your Rate is Too High

Start by requesting a rate review from your current lender. Call them, explain that you've seen lower rates elsewhere, and ask what they can do. Many lenders will reduce your rate by 0.10% to 0.30% to keep you from leaving. It's not always enough, but it's worth trying because it costs you nothing and takes ten minutes.

If they won't move or the reduction isn't sufficient, that's when you look at switching lenders. Get a loan health check to see exactly where you stand and what your options are. A broker can pull live rates from across the market and show you what's available for your loan size, deposit, and situation. We do this daily for clients across Kogarah and beyond who want to know if they're paying too much.

Don't assume your rate is fine just because your repayments haven't changed recently. Rates are tiered, products are constantly updated, and what you were offered two years ago is almost certainly not the sharpest rate available today. If you haven't reviewed your loan in the last 18 months, now's the time.

Call one of our team or book an appointment at a time that works for you. We'll compare your current rate against what's available across more than 40 lenders, walk you through the numbers, and show you whether refinancing makes sense. No obligation, just clarity.

Frequently Asked Questions