Worried your home loan rate isn’t competitive? Maybe it's time to switch

big blue house with lights on
Photo by Ralph Kelly

Yes, the RBA has increased the cash rate by 0.25% and banks are already responding by passing on the rate hike to variable home loans.

So now might be the best time to look at your current mortgage interest rate to double-check that you’re getting a competitive rate. But before you think about switching there are a few things to consider:

  • Extra fees and costs that may come with refinancing home loans
  • Ensuring a switch gets you a better deal.

Below we’ve created a scenario where a couple is comparing their current home loan with a major bank to a smaller lender.

Major bank vs smaller lender

hands checking a smartphone and looking at different graphs

Jacob and Thomas bought a house in a suburb near a major city for $800,000. After paying with a 20% deposit the couple got a variable home loan from CommBank for 4.80% p.a. for 25 years.

CommBank

Cost of the house (minus deposit)$640,000
Variable interest rate4.80% p.a.
Monthly repayment$3,677
Total interest expected to pay$460,154

*This total does not include council fees, bills or home insurance costs.

Jacob and Thomas’ monthly mortgage repayment is $3,677. Which is about $44,124 annually.

After a while, the couple felt the rate they had wasn’t competitive enough, especially when more rate hikes loom. So they decided to see how much they could be saving by switching to an online lender instead. 

If they were to switch to a smaller lender like Athena then they might get a variable interest rate of 2.24% p.a. which is 255 basis points (or 2.55%) lower than CommBank’s rate.

Athena

Cost of the house (minus deposit)$640,000
Variable interest rate2.24% p.a.
Monthly repayment$2,788*
Total interest expected to pay$196,420

*This total does not include council fees, bills or home insurance costs.

By switching to Athena, Jacob and Thomas were able to slash $889 from their monthly repayments and pay about $33,456 annually. Not only that, the total interest payable is reduced by $263,734, which means that they can pay off their home faster.

The average variable interest rate is 3.02%, which means that if the couple secures that 2.24% rate they are 78 basis points below the average.

But what happens if they can’t get the low 2.24% rate? What if they get something closer to the average?

Average home loan interest rate

Cost of the house (minus deposit)$640,000
Variable interest rate3.02% p.a.
Monthly repayment$3,042*
Total interest expected to pay$272,484

*This total does not include council fees, bills or home insurance costs.

By finding a rate closer to the average, Jacob and Thomas could potentially save $635 on their monthly repayments. Paying about $36,504 annually compared to the $44,124 annually with their current rate with CommBank. Even the average rate provides them with a better outcome!

After some thought, the couple decided to make the switch and put the money saved into a term deposit with a high interest rate.

Loan details

Rate change

Repayment change if rates go up

Should I switch my home loan?

woman wondering what home loan to pick

One of the key features of switching your loan from one lender to another is to find a better deal to save money in the long run. That’s why thousands of Australians refinance their home loans.

An Australian Bureau of Statistics report found that Australians are financing at about $14 billion a month!

To get started you should research, research, research!

You want to make sure you’re getting the best deal possible with a home loan that suits all your needs. It’s also important to see what the requirements of each lender are. Some require you to have a certain amount of equity before you can switch or get lower rates. The more equity you have, the higher chance you have of nabbing a cheaper mortgage.

If you’re still not sure about how to refinance your home loan don’t worry, we have plenty of guides available to help you. Alternatively, check out our home loan rate change calculator to see how switching your interest rate may decrease your monthly repayments. If you’re like Jacob and Thomas and looking to make a switch to a more competitive home loan interest rate you can start comparing below or go to our comparison table.

Home loan comparisons on Mozo - last updated 13 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.

    Details
  • 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.

    Details
  • 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.

    Details
  • 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.

    Details

* 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

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.