What Are Today's Interest Rates Really Costing You?

Your rate might look acceptable on paper, but the lending market shifts constantly.

If you locked in a loan more than 12 months ago or haven't reviewed your home loan recently, there's a reasonable chance you're paying more than necessary. Lenders reserve their sharpest pricing for new customers, and existing borrowers often drift into less competitive pricing structures without realising it. The question isn't whether your rate seemed reasonable when you signed up. It's whether it still makes sense now.

How Current Market Rates Compare to What You're Paying

Your interest rate is high if it sits more than 0.30% above what similar borrowers are securing today for the same loan type and structure. Refinancing to reduce your rate becomes worthwhile when the gap between your current rate and available alternatives justifies the transition costs. Consider a borrower in Pascoe Vale with a $550,000 variable rate loan at 6.50%. If comparable loans are now available at 6.09%, that 0.41% difference costs around $188 per month, or roughly $2,256 annually. Over five years, without accounting for balance reduction, that's more than $11,000 in additional interest. At that point, even with discharge and application costs factored in, refinancing delivers a clear financial advantage.

Your rate also matters relative to the loan features you're actually using. Paying a premium for an offset account you rarely fund, or maintaining a package fee for features you don't access, means you're carrying costs without corresponding value.

Fixed Rate Holders Approaching Expiry

If your fixed term ends in the next three to six months, your lender's revert rate is likely higher than what you could secure by switching. Most lenders place expiring fixed rate customers onto their standard variable product, which rarely reflects current competitive pricing. Pascoe Vale homeowners who fixed at 2.50% during the low-rate period and are now facing revert rates above 6.50% will see repayments climb substantially. A $450,000 loan at 2.50% costs around $1,779 per month. At 6.50%, that climbs to approximately $2,843, an increase of more than $1,000 monthly. Reviewing your options 90 days before expiry allows time to compare lenders, submit applications, and settle onto a new loan structure before the revert rate applies.

Some lenders offer retention rates to customers approaching fixed term expiry, but these are often negotiated reactively and may still sit above what new borrowers access elsewhere. Waiting for your lender to contact you with an offer isn't a strategy. Proactive comparison across multiple lenders gives you a clearer picture of where genuine value sits.

Variable Rate Borrowers Who Haven't Reviewed Recently

Variable rates don't move in perfect alignment across lenders. One lender may increase by 0.25% while another holds steady or increases by only 0.10%. Over time, these small differences compound, and borrowers who haven't sought updated pricing can find themselves paying noticeably more than the market average. In our experience, clients who secured loans two or three years ago and haven't reviewed since often discover their rate has drifted 0.40% to 0.60% above current offerings. That's not always the result of rate rises. Sometimes it reflects lenders adjusting their pricing structures for existing customers differently than they do for new acquisitions.

Pascoe Vale sits within the City of Merri-bek, an area with a mix of established homes, young families, and investors drawn to proximity to both the city and local schools like Pascoe Vale Primary and Pascoe Vale Girls Secondary College. Properties here attract a range of borrowers, from first-time buyers stretching their deposit to established owners refinancing to release equity or reduce costs. If your loan was set up through a major bank's branch network rather than a broker, there's a higher likelihood you're on a less competitive rate. Branch-originated loans often carry higher standard pricing, and those customers are less likely to receive proactive retention offers when market rates shift.

When Loyalty Costs You Money

Staying with the same lender because the process feels more straightforward often means paying more over time. Lenders know that existing customers are less likely to switch lenders than new borrowers are to shop around, so retention budgets are typically smaller than acquisition budgets. That's not a moral failing on the lender's part. It's how the market operates. But it does mean that borrowers who assume their lender will automatically offer them competitive pricing are often wrong. If your rate hasn't been reviewed or renegotiated in the past 18 months, and you haven't received a written offer to reduce it, you're likely paying more than necessary.

A loan health check involves comparing your current interest rate, fees, and loan features against what's currently available across the lending panel. It also considers your circumstances now versus when the loan was originally written. Your income may have increased, your loan-to-value ratio has likely improved as you've paid down the principal, and your credit profile may be stronger. All of those factors can unlock access to pricing tiers or lender products that weren't available to you initially.

The Role of Comparison Rates in Understanding True Cost

Comparison rates combine the interest rate with most ongoing fees to give a clearer picture of what the loan actually costs per year. A loan advertised at 6.00% with a $395 annual package fee has a higher comparison rate than a loan at 6.05% with no ongoing fee. Comparison rates are calculated on a standard loan amount over a set term, so they're not perfect, but they do help cut through marketing noise. If your current loan has a comparison rate that's 0.40% or more above what you're seeing elsewhere, that gap represents real cost.

Don't assume a lower advertised rate always means lower cost. Some lenders structure their pricing with low headline rates but higher application fees, valuation costs, or settlement charges. Others offer lower rates but require offsets or redraw to be linked to transaction accounts with monthly fees. The comparison rate won't capture every scenario, but it's a useful starting point when deciding whether your current loan still makes sense.

What About Refinancing Costs?

Discharge fees from your current lender, application fees for the new loan, valuation costs, and potential settlement charges all factor into whether a rate reduction is worth pursuing. Most discharge fees sit between $300 and $500. Valuation costs vary depending on property type and location but typically range from $200 to $400. Some lenders cover these costs as part of refinance offers, particularly for borrowers with strong equity positions and stable income. If you're holding a fixed rate loan and exiting before the term ends, break costs may apply. These can range from negligible to several thousand dollars depending on how much time remains and how far rates have moved since you fixed. Your current lender can provide a break cost estimate, and that figure should be weighed against the total saving over the remaining life of the loan.

If your rate is 0.50% above market and you have a $400,000 loan with 25 years remaining, you'd save roughly $2,000 annually. If refinancing costs $1,500 upfront, you're still ahead within the first year, and the cumulative saving continues to grow. That's a clear case for moving. If the gap is only 0.15% and costs are similar, the benefit is harder to justify unless other features or structural improvements make the switch worthwhile.

Understanding Your Current Loan Structure

Interest rate is only one part of how your loan performs. The structure around it, including offset facilities, redraw availability, extra repayment flexibility, and split options between fixed and variable, shapes how effectively you can manage the debt over time. A loan with a slightly higher rate but full offset capability may outperform a lower-rate loan without it, depending on how much you keep in the offset. If you're paying a premium for features you're not using, that's worth addressing. If you're missing features that would save you money or give you more control, that's also worth addressing.

Clients in Pascoe Vale often hold loans that were set up years ago with structures that no longer suit their circumstances. A borrower who initially needed maximum flexibility might now prefer stability and could benefit from splitting a portion to fixed. Another who locked in entirely during the low-rate period might now want variable exposure to take advantage of potential future cuts. Reviewing your rate is also an opportunity to review your structure and make sure it's still doing what you need it to do.

Call one of our team or book an appointment at a time that works for you. We'll compare your current rate and structure against what's available across the lending panel and walk you through the numbers so you can see exactly where you stand.

Frequently Asked Questions