Home loan loyalty doesn’t pay, says the RBA

Ceyda Erem

10 Feb 2020

Home loan loyalty content

When it comes to choosing a home loan, many Aussies take the ‘set it and forget it’ route, but according to recent data, that could be doing more harm than homeowners realise. 

New research from the Reserve Bank of Australia (RBA) has revealed that Aussies with older variable rate home loans have higher interest rates than new loans - even when borrowers with the same characteristics were compared. 

The data found that these older loans on average had a rate that was 40 basis points higher than new loans. And according to the RBA’s calculations, for a loan with a balance of $250,000, that meant an extra $1,000 of interest payments every year. 

But the news wasn’t all bad, as the Reserve Bank said borrowers with an existing home loan now have the opportunity to get savvy and refinance to a better deal

“This means that existing borrowers who are able to refinance with another lender or negotiate a better deal with the existing lender can achieve interest rate savings,” the RBA said in its latest Statement on Monetary Policy. 

One reason the RBA believes variable rates have such wide ranges comes down to a borrower's credibility as well as different features offered with loans.

Competition stirred up by new borrowers entering the market as well as existing borrowers looking to refinance was also said to explain the vast difference. Rate discounting was one of the key ways banks compete for business on their advertised standard variable rates, with some banks offering discounts of as much as 1.50% last year. 

RELATED: Australia’s best refinance home loans for 2020

To find out whether refinancing could spell big bucks for borrowers, we decided to take our mortgage repayments calculator for a spin. 

Let’s say a borrower initially took out a loan for $400,000 with the average variable rate in the Mozo database of 3.71%^,  but decides to refinance their loan once their balance hits $250,000 after 18 years and 4 months. 

If they were to refinance to the lowest variable rate in the Mozo database, which belongs to Reduce Home Loans at 2.69% (2.70% comparison rate*), while still making their initial repayment amount, they’d save a massive $26,174 and shave 14 months off their loan term. 

“Gone are the days where big banks ruled the home loan market, Aussies can save themselves thousands of dollars by refinancing to another lender,” said Mozo Director, Kirsty Lamont. 

“Don’t get complacent, review your home loan and if it’s anything less than competitive, ring up your lender and ask for a better deal or better yet, take your business elsewhere.”

So if you’re ready to find out how much you could be saving on your home loan, head on over to Mozo’s refinance home loan comparison tool

^At the time of writing 

Compare refinance home loans

Rates updated daily. Advertiser disclosure.

  • loans.com.au
    Mozo Expert Choice Badge" style="width:60px;">

    1.85% p.a.variable for 24 months and then 2.25% p.a.

    2.21% p.a.

    $1234

    Product details Close details
    Smart Booster Home Loan

    2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    1.85% p.a.variable for 24 months and then 2.25% p.a.

    2.21% p.a.

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    Smart Booster Home Loan

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • Optional - with 0.10% additional interest

    • $520

    • 1.85% p.a.variable for 24 months and then 2.25% p.a.

    • 2.21% p.a.

    • $520

    • 80.00%

    • $50,000

    • $1,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Smart Booster Home Loan

    Details Close

  • UBank

    p.a.

    2.27% p.a.

    $1234

    Product details Close details
    UHomeLoan

    Owner Occupier, Principal & Interest

    p.a.

    2.27% p.a.

    $0 fees and easy application. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.

    UHomeLoan

    $0 fees and easy application. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.

    • $0.00

    • $0.00

    • yes - free up to $20,000 during fixed rate term

    • no

    • no

    • $0

    • p.a.

    • 2.27% p.a.

    • $0

    • 80.00%

    • $100,000

    • $2,000,000

    • Fixed

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    • $395 Establishment fee waived for fixed rate loans that settle by 30 September 2021.

    Read our Mozo Review to learn more about the UHomeLoan

    Details Close

  • Athena
    Mozo Expert Choice Badge" style="width:60px;">

    1.99% p.a.

    1.99% p.a.

    $1234

    Product details Close details
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    1.99% p.a.

    1.99% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    Celebrate Variable Home Loan

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • $0

    • 1.99% p.a.

    • 1.99% p.a.

    • $0

    • 60.00%

    • $100,000

    • $2,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Celebrate Variable Home Loan

    Details Close

  • Nano

    1.99% p.a.

    1.99% p.a.

    $1234

    Product details Close details
    Variable Home Loan

    Owner Occupier, Principal & Interest

    1.99% p.a.

    1.99% p.a.

    Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Comes with Visa debit card and the ability to use digital wallets; Apple and Google Pay. 25% deposit required.

    Variable Home Loan

    Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Comes with Visa debit card and the ability to use digital wallets; Apple and Google Pay. 25% deposit required.

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • yes - offset sub account

    • $0

    • 1.99% p.a.

    • 1.99% p.a.

    • $0

    • 75.00%

    • $100,000

    • $2,500,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Monthly

    Read our Mozo Review to learn more about the Variable Home Loan

    Details Close

  • Macquarie

    p.a.

    2.32% p.a.

    $1234

    Product details Close details
    Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    p.a.

    2.32% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

    Basic Home Loan

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

    • $0.00

    • $400.00

    • yes - free

    • yes - free

    • no

    • $0

    • p.a.

    • 2.32% p.a.

    • $0

    • 70.00%

    • $150,000

    • $750,000

    • Fixed

    • Principal & Interest

    • Owner Occupier

    • Monthly

    Read our Mozo Review to learn more about the Basic Home Loan

    Details Close

^See information about the Mozo Experts Choice Home loans Awards