5 Ways to Tell if Your Interest Rate is Too High

Is Your Interest Rate Higher Than It Should Be?

Your interest rate might be costing you hundreds extra each month without you realising it. Lenders don't contact existing customers when better rates become available, and many Dunsborough homeowners stay on rates that sit well above what new borrowers receive from the same bank.

The gap between what you're paying and what's available now depends on when you took out your loan, whether you've been moved to a standard variable rate, and how long it's been since you last reviewed your home loan. Even a difference of 0.5% can add up to thousands in additional interest over the life of your loan.

Compare Your Rate to What the Same Lender Offers New Customers

The fastest way to check if your rate is high is to look at what your current lender advertises for new customers. If your rate sits more than 0.3% to 0.5% above their current advertised rate for the same loan type, you're likely paying a loyalty tax.

Consider a Dunsborough couple who took out a variable home loan three years ago at 5.8%. Their lender now advertises the same product at 5.2% for new customers. That 0.6% difference on a $500,000 loan costs them around $250 extra per month. They're not being rewarded for staying, they're being charged for not leaving.

Most lenders reserve their sharpest pricing for new customers. If you've been with the same bank for more than two years and haven't contacted them about your rate, there's a strong chance you're on a higher rate than someone who walked in last month.

When Your Fixed Rate Ends and You Roll to Standard Variable

Moving from a fixed rate to your lender's standard variable rate almost always results in a jump. Standard variable rates typically sit 0.5% to 1% higher than discounted variable rates offered to new borrowers.

In our experience, homeowners in Dunsborough who fixed during the low-rate period and have recently rolled onto variable are often shocked by the increase. A borrower who locked in at 2.1% and now sits on a standard variable rate above 6% will see a significant lift in repayments. That shift alone can justify refinancing to a lender offering a lower ongoing rate.

Check if Your Rate Reflects Your Current Loan-to-Value Ratio

Your interest rate should improve as your equity grows. Lenders offer lower rates to borrowers with more equity because the loan carries less risk. If your home has increased in value or you've paid down a portion of your loan, your loan-to-value ratio has likely improved since you first borrowed.

A Dunsborough homeowner who bought a property near the Dunsborough Lakes estate may have seen their property increase in value while continuing to make repayments. If their loan-to-value ratio has dropped from 85% to 70%, they should be eligible for a better rate. If their current lender hasn't adjusted their rate to reflect that, refinancing to a new lender could unlock a rate reduction without changing loan size.

Some lenders automatically adjust rates as your equity improves. Others don't. If you've built up equity and your rate hasn't changed, it's worth asking why.

Compare the Comparison Rate, Not Just the Advertised Rate

The advertised interest rate is only part of the picture. The comparison rate includes fees and gives you a clearer sense of what the loan actually costs over time. A loan with a low headline rate but high ongoing fees can end up more expensive than one with a slightly higher rate and lower fees.

When comparing your current loan to what's available now, look at the comparison rate on your most recent statement and compare it to the comparison rate on loans you're considering. The gap between the two tells you how much room there is to save.

If your comparison rate sits above 6.5% and you're seeing offers around 6%, that gap represents real savings. You can use a refinance calculator to estimate how much you'd save over the remaining term of your loan.

Factor in Refinance Costs Before You Switch

Switching lenders isn't free. Discharge fees from your current lender, application fees with the new lender, and valuation costs can add up to $1,000 to $2,000. If you're still in a fixed rate period, break costs can add thousands more depending on rate movements since you fixed.

The rate reduction needs to be large enough to recover those costs within a reasonable period. If refinancing saves you $200 per month and costs $1,500 upfront, you'll break even in eight months. After that, the savings are yours to keep.

We regularly see situations where the numbers make sense, but also cases where the gap isn't wide enough to justify the switch. A loan health check can show you whether refinancing stacks up in your situation, including a breakdown of costs and potential savings based on your current rate and loan balance.

If you're not sure whether your rate is too high or whether it's worth refinancing, call one of our team or book an appointment at a time that works for you. We'll run the numbers, show you what's available, and give you a clear recommendation based on your loan and your goals.

Frequently Asked Questions