The cost of remaining with an existing lender

Remaining with an existing lender costs nothing in fees, which is why the expense is easy to overlook. The cost arises when the interest rate on an older variable loan sits above the rate the same lender, or a competitor, is offering to new customers for a comparable loan. Both the Reserve Bank of Australia (RBA) and the Australian Competition and Consumer Commission (ACCC) have documented this pattern, and both have observed that borrowers who renegotiate or refinance can reduce the interest they pay.

The size of the gap changes over time. It was substantial when the ACCC examined it in 2020 and, according to the RBA, the market-wide average had narrowed considerably by the end of 2025. An average, however, says little about an individual loan. The practical response is to check the rate every year, request a pricing review, and compare the result with a refinance to another lender.

What the RBA and ACCC found about rates for new and existing customers

In its February 2020 Statement on Monetary Policy, the RBA reported that variable rate loans written four or more years earlier carried interest rates around 40 basis points higher than new loans at that time. On a balance of $250,000, the RBA estimated this at roughly $1,000 in additional interest each year. The difference persisted after allowing for the type of loan, which indicates that the date a loan was written influences its price.

The ACCC reached a similar conclusion in the final report of its Home Loan Price Inquiry, published on 5 December 2020. As at September 2020, the ACCC found that:

• borrowers with loans between three and five years old paid on average about 58 basis points more than the average rate paid on new loans;
• borrowers with loans more than ten years old paid on average about 104 basis points more; and
• a borrower with a $250,000 loan in the three to five year group could have saved more than $1,400 in interest in the first year, and more than $17,000 over the remaining term, by moving to the average rate paid on new loans.

These figures describe market conditions in 2019 and 2020 and should not be read as the current position. In a February 2026 Bulletin article, the RBA reported that new variable rates were about 35 basis points below the average outstanding variable rate in December 2019, and that this gap had narrowed to approximately 3 basis points by December 2025. The RBA linked the change to stronger competition, record external refinancing, greater use of mortgage brokers and simpler rate request processes.

Why an average can conceal an individual problem

A narrow average gap means that many existing borrowers have already renegotiated or refinanced. It does not mean that every loan has been repriced. A borrower who has not contacted the lender for several years may still be paying a rate well above the market, while the average is pulled down by customers who have been active. The RBA publishes average rates for new and outstanding loans in its chart pack, which provides a neutral benchmark. Market context is also summarised on the interest rates page.

Why lenders price new and existing loans differently

The mechanism is straightforward. Most variable rate loans are priced as a reference rate, often called the standard variable rate, less a discount. According to the RBA, that discount is usually fixed for the life of the loan unless it is renegotiated. The RBA observed that the average discount offered by the major banks on new variable loans widened from around 100 basis points in 2015 to more than 150 basis points in 2019. A borrower who took a loan in an earlier year therefore retained a smaller discount than the one offered to a new customer several years later.

The RBA explained that increasing discounts for new borrowers, rather than lowering reference rates, allows lenders to compete for customers who are shopping around without reducing the rate charged to existing customers.

The ACCC identified borrower inertia as the other half of the explanation. Its final report noted that many borrowers presume that they would not save much by switching, and that, outside a major event such as moving house, few are prompted to review their loan. Survey data held by two of the big four banks showed that fewer than one in five borrowers intended to refinance or switch within the following 12 months. Unadvertised discretionary discounts also make it difficult to know what a competitive rate looks like.

How to check whether an existing rate is competitive

A rate review starts with evidence. The following checks generally take less than an hour:

1. Find the current interest rate, the loan balance and the remaining term on a recent statement or in online banking.
2. Look up the rate the same lender advertises to new customers for the same type of loan, matching owner occupier or investor status, principal and interest or interest only repayments, and the loan to value ratio tier.
3. Collect two or three comparable offers from other lenders. The loan comparison page is a reasonable starting point.
4. Compare on the comparison rate as well as the headline rate, because annual package fees and monthly account fees alter the true cost.

How to request a rate review from a current lender

Lenders generally have a process for repricing existing loans, although it is rarely publicised. The RBA reported in 2024 that lenders remained generally willing to negotiate discounts to retain existing borrowers. A typical approach is as follows.

1. Contact the lender by telephone, secure message or application and ask for a pricing review. Some lenders route these requests to a retention team.
2. State the rate the lender offers new customers for an equivalent loan and ask for it to be matched.
3. Quote specific competitor offers, including the lender name, product, rate and any fees.
4. Ask whether the reduced rate requires a product switch, whether any fee applies, and whether features such as an offset account or redraw would change.
5. Request written confirmation of the new rate and its effective date, and check the next statement.

A mortgage broker may make the request instead. If the first response is unsatisfactory, a request for a mortgage discharge form often triggers a further retention offer. The ACCC noted that lenders typically respond to a discharge request with a lower rate, a cashback or another incentive. It also cautioned that short term incentives can save less over time than a genuinely lower rate.

What to have ready before the call

• The loan account number, current rate, balance and remaining term.
• An estimate of the property's current value and the resulting loan to value ratio. A ratio below 80 per cent, or lower tiers where a lender uses them, may qualify for sharper pricing. The home equity calculator can assist with this estimate.
• Written details of competing offers.
• A clear view of the features that matter, so that a lower rate is not accepted in exchange for losing a feature that is actually used.

Illustrative example: the cost of a 0.50 percentage point gap

The following example is hypothetical and uses round numbers. It does not reflect any current rate or any particular lender. Assume a balance of $500,000 with 25 years remaining on principal and interest repayments, a current rate of 6.30 per cent, and a reviewed rate of 5.80 per cent.

Measure	At 6.30%	At 5.80%	Difference
Monthly repayment	$3,313.82	$3,160.66	$153.16
Interest in the first year	$31,257	$28,759	$2,498
Interest over 25 years	$494,145	$448,197	$45,948

If the borrower in this example obtained the lower rate but continued to pay $3,313.82 each month, the loan would be repaid in about 271 months instead of 300, which is 29 months sooner, and total interest would fall to about $398,013. That is a saving of roughly $96,000 compared with leaving the loan unchanged. The mortgage repayment calculator allows the same comparison with actual figures.

When switching lenders is the better option

A rate review is the lowest effort step, but it is not always sufficient. Refinancing may be the stronger option where:

• the lender declines to match the rate it offers new customers, or matches only part of the gap;
• the reduction is offered as a temporary discount that expires after a year or two;
• a competitor's loan includes features the current loan lacks, such as a full offset account, at a similar or lower cost; or
• the interest saving over the period the borrower expects to hold the loan clearly exceeds the cost of switching.

Switching is not free. The ACCC's final report estimated that moving a loan between the big four banks in mid 2020 could cost upward of $1,150, made up of a discharge or settlement fee, a loan establishment fee and land titles office charges. Those amounts are historical, so current fees should be confirmed with each lender. The ACCC also noted that borrowers on fixed rates may face a break fee, and that lenders mortgage insurance may be payable again where the new loan exceeds 80 per cent of the property's value. The refinance calculator compares these costs with the projected saving and shows how long the switch takes to pay for itself.

Common mistakes when comparing a retention offer with a refinance

• Resetting the term to 30 years on refinancing. The repayment falls, but total interest may rise. Keeping the remaining term, or maintaining the previous repayment, preserves the benefit.
• Comparing a headline rate with no regard to package or account fees.
• Accepting the first retention offer without asking whether it matches the new customer rate.

How often to review a home loan rate

The ACCC recommended that lenders be required to send an annual prompt to variable rate borrowers whose loans are more than three years old, showing how their rate compares with the average for similar new loans. The ACCC also recommended a standard discharge form and a limit of 10 business days for processing discharge requests. BorrowWise has not been able to confirm whether these recommendations have been implemented in full, so borrowers should not rely on receiving a prompt from their lender.

An annual review in the borrower's own calendar achieves the same purpose. Useful triggers for an additional review include a change in the cash rate, the end of a fixed or introductory period, and a rise in the property's value. Borrowers who would like a structured comparison may use the free assessment. This article is general information only and does not take personal circumstances into account. A licensed adviser or mortgage broker can confirm what is suitable for a particular borrower.