Most homeowners know roughly how much comes out of their account for the mortgage each month.
But when I ask what interest rate they’re currently paying, the answer is often a little less certain.
That’s understandable. Once a home loan is set up, it’s easy to leave it running in the background while life moves on.
The problem is that home loan pricing doesn’t stand still.
Lenders change rates and discounts, new products come onto the market, and your own financial position may look quite different from when you first took out the loan.
So if you haven’t looked at your home loan for a while, it may be worth checking whether your rate is still competitive.
Your loan might not be the same deal it was a few years ago
A home loan that made sense when you bought your property can still be perfectly suitable today. But I wouldn’t assume that without checking.
Over a few years, you may have paid down your loan while your property has increased in value. That can mean a lower loan-to-value ratio (LVR).
Your income may have changed. You may have paid off other debts. Or your lender may simply be offering different pricing today.
There can also be a surprisingly wide range of rates across the market. ASIC’s Moneysmart notes that variable home loan rates can differ by more than two percentage points.
That doesn’t mean the cheapest advertised rate is automatically the right loan for you. It does mean there can be value in knowing how your current loan compares.
What difference does 0.25% actually make?
This is where I think it helps to look at dollars rather than percentages.
Say you have a $600,000 home loan with 30 years remaining.
| $600,000 loan / 30 years | Monthly repayment |
|---|---|
| 6.25% | ~$3,694 |
| 6.00% | ~$3,597 |
| Difference | ~$97/month |
A quarter of a percent suddenly looks a little more interesting when you put it that way.
Of course, that doesn’t mean someone with a 6.25% rate should immediately refinance to a 6.00% loan. There’s more to the decision than that.
These figures are illustrative only and assume the interest rate remains unchanged. Actual repayments and potential savings will depend on your loan balance, remaining term, fees and individual circumstances.
A lower rate doesn’t always mean a better refinance
This is something I explain to clients quite often.
If another lender has a lower rate, I still want to know what it will cost you to move.
There may be discharge costs, application or establishment fees, government registration costs and, depending on the situation, valuation costs or lenders mortgage insurance (LMI). If you’re currently on a fixed rate, break costs may also apply.
Then there are the features of the loan itself.
Do you actually use an offset account? Would redraw be enough? Are you paying an annual package fee for features you rarely use?
The remaining loan term matters as well.
For example, someone might have 22 years left on their current mortgage and refinance into a new 30-year loan. Their required monthly repayment could fall, which looks great at first glance, but stretching the debt over another eight years can increase the total interest they pay.
So when I compare a refinance, I’m not just looking for the lowest number in the interest-rate column.
I want to know whether moving lenders actually leaves the client in a better position overall.
Sometimes you don’t need to change lenders at all
Before going through a full refinance, it can also be worth seeing what your existing lender is prepared to offer.
If your rate is no longer competitive, your lender may be willing to review its pricing.
If they offer a better rate and the loan still has the features you need, staying put could be the simplest and most cost-effective option.
And if they won’t move? At least you then have something concrete to compare against other lenders.
A home loan review doesn’t have to end with a refinance.
Sometimes the answer really is: your current loan is fine.
So when should you check your home loan?
There’s no magic date, but I’d consider having another look if you haven’t reviewed it for a few years, your fixed rate is coming to an end, your property value has increased significantly, or your financial situation has changed.
The same applies if you’re thinking about renovating, buying an investment property, accessing equity or simply wondering why you’re paying the rate you are.
You don’t need to wait until something is wrong with the loan.
Sometimes it’s just worth knowing where you stand.
Want to know how your home loan compares?
I’m Bora, a mortgage broker based in Pimpama, helping homeowners, buyers and property investors across the Gold Coast and Brisbane with their home loan options.
If you haven’t reviewed your mortgage for a while, I can look at your existing loan, see how it compares and talk you through the options available.
If refinancing makes sense, we can look at it.
If staying with your current lender makes more sense, that’s useful to know too.