Switch and save? Home loan borrowers settling for higher rates could be giving away thousands

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Borrowers are settling for higher interest rates that aren’t helping them own their home sooner.

Home loan borrowers are settling for higher interest rates that could be gifting away tens of thousands of dollars in extra interest payments over the life of their loans.

In today’s competitive market with more than 5,500 home loans listed on Australia’s biggest financial comparison site*, Canstar is urging borrowers to avoid the heartbreak of throwing money away and explore all available avenues to secure the most favourable interest rates.

Analysis of the Reserve Bank of Australia’s lenders’ interest rates shows there is a 0.64 percentage point difference between the average variable interest rate for existing borrowers at 6.39% compared to the lowest ongoing variable rate available today at 5.75%.

This cuts repayments by $248 per month on a $600,000 loan over 30 years, however, the interest saving longer term is $89,108 over the life of the loan. For a larger loan amount of $1 million, the savings could be $413 per month in repayments or as much as $148,603 in interest over 30 years.

Canstar’s finance expert, Steve Mickenbecker says, “Settling for too long in a loan with an interest rate that you haven’t reviewed in years can lead to heartbreak after realising you could be paying away close to $100,000 or a lot more in interest that isn’t necessary.”

“Valentine’s Day roses can set you back $70, chocolates $20, dinner $150 or you could give your significant other his or her half share of the $100,000 saving potentially available by switching to a low interest rate loan. It feels like loans are forever and this is the gift that keeps giving.

“The Reserve Bank’s lenders’ interest rate data shows many existing borrowers are settling for higher interest rates and underpins the importance of showing your loan some love every so often and making sure it’s still the best option that’s going to see you pay your loan off sooner rather than later.

“There are 19 variable interest rates below 5.75 percent listed on Canstar and sure, you may not qualify for the absolute lowest rate in the market but getting a rate below 6 percent is where the game is at.

“With the huge savings possible it’s surprising to see the latest ABS lending statistics show a slowdown in borrowers switching their loans to a new lender with refinancing activity down by 1.6 percent for December. An opportunity is being missed by many borrowers.

“Canstar’s Consumer Pulse Report released in December showed more than one-third of homeowners and investors say they’re not prepared for mortgage interest rates to remain at the current level before potential rate cuts start.

“The next cash rate movement is almost universally expected to be a cut, but it is anticipated to be many months off. It would be a shame for borrowers to pass up the chance to cut their monthly repayment now and instead hold their breath until the Reserve Bank shows them some love with a rate cut.”

canstar.com.au:">Top 6 lowest ongoing variable rates listed on Canstar.com.au:

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Top 6 Lowest Ongoing Variable Home Loan Rates for Owner Occupiers
Provider	Loan	Max LVR	Rate	Comparison Rate	Monthly Repayment ($600k, 30 years)	Total Interest Paid ($600k, 30 years)
Arab Bank Australia	The Basics ≤60% Special Offer	60%	5.75%	5.88%	$3,501	$654,506
Challenger	Basic Variable Home Loan P&I ≤60%	60%	5.89%	5.89%	$3,555	$673,542
Pacific Mortgage Group	Variable P&I	90%	5.89%	5.89%	$3,555	$673,542
The Mutual Bank	Special Variable Rate LVR <80%	80%	5.89%	5.89%	$3,555	$673,542
Australian Mutual Bank	GumLeaf Basic Variable – OO P&I ≤60%	60%	5.89%	5.96%	$3,555	$673,542
Regional Australia Bank	Mortgage Offset P&I <60%	60%	5.90%	5.93%	$3,559	$674,907

Source: www.canstar.com.au – 13/02/2024 1:20PM AEST. Based on owner occupier loans on Canstar’s database, available for a $600,000 loan, any LVR and P&I repayments; excluding first home buyer only and other special condition loans. Lowest rates selected based on rate and then comparison rate; and sorted in ascending order by rate, followed by comparison rate, followed by alphabetically by provider. One product per provider is listed. Comparison rate calculated based on a loan amount of $150,000 and a loan term of 25 years.

If you’re looking to switch home loans, you can compare home loans from over 80 lenders with Canstar.

Cover image source: Summit Art Creations/Shutterstock.com

This article was reviewed by our Senior Finance Journalist Alasdair Duncan before it was updated, as part of our fact-checking process.

Belinda Williamson

Group Manager, Corporate Affairs

Belinda is Canstar’s Group Manager, Corporate Affairs with responsibility for the company’s external communications strategy and media relations. A finance enthusiast who has worked in the financial services industry for more than a decade, Belinda is an experienced writer and media spokesperson who regularly contributes to the conversation on the finance topics that matter today through appearances on television and radio and in a multitude of print and online media articles. Belinda was previously Head of Corporate Affairs and company spokesperson at one of Australia’s largest and publicly-listed franchised mortgage brokers where she was responsible for the company’s internal, corporate, media, industry, government and investor communications. She has also worked in North America leading media relations strategies, influencer marketing campaigns and large-scale event projects for some of Canada’s most well-known tech, finance and real estate brands.