Is Your Interest Rate High and What To Do About It

How To Tell If Your Current Rate Is Too High

Your rate is too high if it sits more than 0.30% above the lowest comparable product available to borrowers with your deposit level and loan structure.

Consider a borrower in Malvern East who refinanced in late 2023 on a variable rate at 6.20%. When they checked their statement recently, the rate had climbed to 6.49% after two lender increases. Meanwhile, similar products from other lenders were pricing new customers at 5.99% for the same loan-to-value ratio. That 0.50% gap costs them roughly $140 extra per month on a $600,000 loan, or $1,680 per year in avoidable interest.

The problem is rarely obvious from your statement alone. Lenders don't send you a notification when your rate becomes uncompetitive. You need to compare your current rate against what you could access today with your equity position, not what you qualified for when you first borrowed.

Why Rates Drift Higher Over Time

Lenders price their lowest rates to attract new business, not to reward loyalty.

Once you're on the books, your rate typically increases faster than the advertised rates for new customers. This happens because lenders apply the full extent of Reserve Bank cash rate rises to existing customers while simultaneously discounting their new customer offers to remain competitive in the market. Over two or three years, the gap can widen to 0.40% or more without you taking any action.

In our experience working with Malvern East clients, many borrowers assume their rate is still competitive because they started with a strong deal. But a rate that was sharp three years ago may now be sitting in the middle or upper end of the current market, particularly if you've built equity through repayments or capital growth in the area.

The Role of Loan-to-Value Ratio in Pricing

Your loan-to-value ratio determines which pricing tier you qualify for, and equity growth can move you into a lower rate band without refinancing.

Lenders typically offer their sharpest rates to borrowers below 70% LVR, then apply a margin for those between 70% and 80%, and another step up for loans above 80%. If your property has increased in value or you've paid down your loan, your LVR may have dropped enough to access a materially lower rate, either with your current lender or elsewhere.

As an example, a Malvern East property purchased for $1,100,000 with a $900,000 loan in early 2022 would have started at roughly 82% LVR. If that property is now worth $1,200,000 and the loan has been paid down to $870,000, the LVR has fallen to 72.5%. That shift alone can unlock access to rates 0.20% to 0.30% lower than the borrower is currently paying, depending on the lender. The suburb's median has held firm through the recent cycle, supported by proximity to Chadstone, Monash University, and the Glen Waverley train line, so many properties in the area have seen similar equity improvement.

Fixed Rate Expiry and What Happens Next

If your fixed rate expired in the past 12 months, you almost certainly reverted to a higher variable rate than you need to be paying.

When a fixed term ends, most lenders move you to their standard variable rate, which is rarely their most competitive product. The revert rate can be 0.40% to 0.60% above the equivalent rate offered to new customers on the same loan type. You're not automatically moved to the lowest available rate unless you actively request it or refinance.

We regularly see this with Malvern East borrowers who fixed during the low rate period and are now coming off those terms. The gap between what they're paying and what's available has widened significantly, and many don't realise they need to take action to close it. If you're in this position, refinancing to reduce your rate is worth reviewing within the first few months of reverting.

What a Rate Reduction Actually Saves You

A 0.40% rate reduction on a $700,000 loan saves approximately $233 per month, which compounds over the life of the loan if you maintain the same repayment level.

The immediate benefit is lower monthly repayments, but the longer-term value comes from paying down principal faster if you continue paying what you were before the rate dropped. That accelerates your equity build and reduces total interest paid. The exact outcome depends on your loan term and repayment strategy, but the difference is measurable from the first month.

You can model the impact using a loan repayment calculator by entering your current rate and balance, then comparing the result against a lower rate scenario. If the monthly saving exceeds the cost of switching lenders, the case for refinancing becomes straightforward.

How To Compare Your Rate Without Guessing

Use your current loan balance, property value estimate, and loan structure to request a written comparison from a broker or directly from lenders.

You need three pieces of information: your outstanding loan amount, an updated property valuation or reasonable estimate, and whether your loan is owner-occupied or investment, principal and interest or interest-only. With that, a broker can pull current pricing across 30-plus lenders and show you where your rate sits relative to the market.

Most Malvern East borrowers we work with are surprised by how much variance exists between lenders at any given time. A lender that was competitive two years ago may now be sitting 0.50% above others for the same loan type, and the reverse can also be true. The market shifts constantly, and your current lender has no obligation to tell you when they're no longer the most competitive option for your situation.

When Refinancing Costs Outweigh the Benefit

If your loan balance is below $250,000 and the rate difference is less than 0.30%, the upfront cost of refinancing may take 18 months or more to recover.

Refinancing typically incurs discharge fees from your current lender, application fees with the new lender if applicable, and valuation or settlement costs. These can total $800 to $1,500 depending on the lender and loan size. On a smaller balance, the monthly saving may not justify the outfront outlay unless you're planning to hold the loan for several more years.

In that scenario, it's worth asking your current lender for a rate reduction before committing to a refinance. Many lenders will negotiate if you present a competing offer, particularly if you have a strong repayment history and solid equity. That approach costs nothing and can deliver 0.10% to 0.20% in immediate savings without the hassle of switching.

What To Do If You're Unsure

Request a loan health check to see where your current rate sits against the market and whether refinancing makes sense for your situation.

A health check compares your loan structure, rate, and features against current offerings and identifies whether you're paying more than necessary. It takes 10 minutes to complete and gives you a clear starting point for any conversation about reducing your rate, either with your current lender or through a refinance.

If the numbers support a change, the next step is to gather your recent loan statements, a rough property value estimate, and any offset or redraw balances, then speak with a broker who can walk through the options specific to your circumstances. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions