Home loan loyalty doesn’t pay, says the RBA

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 - last updated 16 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • Smart Booster Home Loan

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

    interest rate
    comparison rate
    Initial monthly repayment
    3.60% p.a.variable for 24 months and then 4.00% p.a. variable
    3.96% p.a.

    Already includes July RBA rate increase. 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.

  • Unloan Variable

    Owner Occupier, Refinance Only

    interest rate
    comparison rate
    Initial monthly repayment
    3.14% p.a. variable
    3.06% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

  • Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.79% p.a. variable
    3.79% 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.


* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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