Do you know if your interest rate is too high?

How to tell if your rate is higher than current offers

Your rate is too high if it sits more than 0.30% above what the same lender is advertising to new customers for the same loan type. Log into your online banking, find your current interest rate, then visit your lender's website and compare it to their advertised rates for new borrowers. If you're on a variable rate of 6.50% and they're offering 6.15% to new customers, that gap represents real money leaving your account every month.

Consider someone with a $450,000 loan at 6.50% who discovers their lender is advertising 6.15% for new customers. That 0.35% difference adds up to around $130 extra each month, or close to $1,600 a year. They called their lender, mentioned they were considering a refinance, and within a week had their rate dropped to match the advertised offer without changing lenders or paying a cent in fees.

The comparison rate tells you more than the headline figure

The comparison rate includes the interest rate plus most fees and charges rolled into a single percentage, giving you a clearer picture of what a loan actually costs over its life. A lender might advertise a variable rate of 6.00% with a comparison rate of 6.18%, while another shows 6.10% with a comparison rate of 6.12%. The second option costs less overall despite the higher headline rate because the fees are lower.

When you're assessing whether your current loan is competitive, calculate what your comparison rate would be if you were applying today. Add up your annual account keeping fees, any package fees, and ongoing costs, then compare that total against what other lenders are charging. Many borrowers stay on loans with low advertised rates but high ongoing fees, thinking they've got a good deal when the total cost puts them well above the market.

Fixed rate break costs can change the equation

If you're locked into a fixed rate, your lender will charge break costs if you refinance or repay early, calculated based on the difference between your locked rate and the current wholesale rate your lender can earn if they reinvest your money. When fixed rates were climbing, break costs were often zero or minimal because lenders could reinvest at a higher rate. Now that rates have steadied or started to decline in some cases, break costs have returned.

Your lender is required to provide a break cost estimate if you ask for one, and you can request this at any time without committing to anything. If you're 18 months into a three-year fix at 5.80% and current fixed rates for the remaining term are sitting around 6.20%, your break cost will likely be negligible or zero. If the situation is reversed and current rates are lower, the break cost might outweigh any short-term saving, but it's still worth running the numbers to see when you'd break even. You can read more about what happens as your fixed term ends on our fixed rate expiry page.

What counts as a meaningful rate reduction

A rate reduction of 0.50% or more is almost always worth acting on, especially if you're not paying break costs or significant exit fees. On a $400,000 loan, a 0.50% reduction saves around $2,000 a year in interest, or just over $165 a month. Anything below 0.30% starts to get marginal once you account for the time involved, application fees with a new lender, and any valuation or legal costs.

That said, the threshold shifts depending on your loan size and how long you plan to stay in the property. Someone with a $600,000 loan and no plans to move for five years will see a 0.40% reduction deliver around $14,000 in total interest savings over that period, even after paying $1,500 in switching costs. Someone with a $250,000 loan who might sell within two years would barely break even on the same rate drop.

Rate shopping works if you know what lenders are actually approving

Advertised rates are often tied to loan-to-value ratios, loan sizes, or package requirements that don't match your situation. A lender might promote a rate of 5.95%, but that rate only applies if you're borrowing at least $500,000, have a loan-to-value ratio below 70%, and pay an annual package fee of $395. If your loan is $380,000 and your LVR is 75%, you won't qualify for that rate, and the next tier might be 6.35%.

This is where a loan health check becomes useful, because it compares your actual circumstances against what lenders will genuinely approve for someone in your position. We regularly see people assume they can't get a lower rate because the advertised offers don't apply to them, when in reality there are lenders who will offer a meaningful reduction without requiring a higher loan amount or a package fee.

When switching lenders makes sense and when it doesn't

Switching lenders makes sense when the rate reduction covers your costs within 12 to 18 months and you're not giving up features you actively use. If you're paying 6.60% and another lender will approve you at 6.00%, that's a $2,400 annual saving on a $400,000 loan. Even after paying $1,200 in discharge, application, and valuation fees, you're ahead within six months and continue saving from that point forward.

It doesn't make sense if you're using an offset account that consistently holds a balance close to your loan amount and the new lender either doesn't offer offset or charges a higher rate to include it. The value of that offset in reducing your interest often outweighs a small rate difference. It also doesn't make sense if you're planning to sell within the next 12 months and the upfront costs won't be recovered in time, or if your current lender is willing to match or come close to the competing offer without the hassle of switching.

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