What Refinancing to a Lower Rate Really Saves
The RBA and ACCC have both documented what lenders call the "loyalty tax": existing borrowers systematically pay higher rates than new customers at the same bank. If you haven’t refinanced or renegotiated in a couple of years, there is a very good chance you are donating half a percent — or more — every month.
This page shows what that half a percent is actually worth on a typical loan, because "0.5%" sounds trivial and the real number is anything but.
How it works
A lower rate cuts the interest portion of every repayment for the rest of the loan. On $600,000, half a percent is roughly $3,000 in the first year alone — and if you keep your repayment at the old level rather than pocketing the difference, the entire saving attacks the principal and compounds.
That second step is the one most people miss. Refinance and lower your repayment, and you save on interest but keep the same 30-year sentence. Refinance and hold your repayment where it was, and you save the interest and finish years earlier.
Sam has been with the same bank since 2019 — "easier not to think about it." A fifteen-minute phone call, two hundred dollars in fees, and a new lender dropped the rate from 6.5% to 6.0%. Over the remaining term, that half a percent is a second car.
The worked example
The numbers on this page model a $600,000 loan at 6.5% over 30 years — a realistic Australian mortgage. Here is what changes when you apply the strategy (rate reduction: −0.50%):
| Bank’s plan | With this strategy | Difference | |
|---|---|---|---|
| Time to pay off | 30.0 years | 30.0 years | −0.0 years |
| Total interest paid | $765,267 | $695,029 | −$70,238 |
Drag the slider to change the assumption and watch the payoff date move:
How to do it
- Find your current rate on your statement (many borrowers genuinely don’t know it).
- Check comparison sites for what new customers are paying on similar loans — that’s your target.
- Call your lender first and ask for a rate match: "I’m paying X, new customers pay Y, match it or I’m refinancing." This works surprisingly often and costs nothing.
- If they won’t move, refinance. Budget a few hundred dollars in fees and check any break costs if you’re on a fixed rate.
- Keep your repayment at the old amount after the switch — that’s where the years-off-the-loan saving comes from.
Watch-outs
- Refinancing a fixed-rate loan before the fixed period ends can trigger break costs that swamp the benefit — get the payout figure first.
- Watch cashback offers with higher ongoing rates: a $3,000 cashback is erased quickly by an extra 0.2%.
- Extending the loan term when you refinance (e.g. resetting to a fresh 30 years) can make repayments look cheaper while costing more overall — keep the remaining term the same or shorter.
Frequently asked questions
Is refinancing worth it for a 0.25% rate cut?
Usually yes, if fees are modest. On a $600,000 loan, 0.25% is about $1,500 a year — against typical switching costs of $300–$800, you’re ahead within months. The bigger your balance and remaining term, the more even small cuts are worth.
How often should I review my home loan rate?
Once a year, and after every RBA rate change. A five-minute comparison against new-customer rates tells you if the loyalty gap has opened up again. Many borrowers find rate-matching by phone works every couple of years without ever formally refinancing.
Does refinancing hurt my credit score?
A refinance application creates a credit enquiry, which has a small, short-lived effect. One refinance every few years is a non-issue; a dozen applications in a month is not. The interest savings almost always outweigh the credit-score consideration.