Top tips to know if your interest rate is too high

If you took out a mortgage more than a year ago and haven't reviewed it since, you're probably paying more than you need to.

Lenders routinely offer lower rates to new customers while existing borrowers stay on higher rates unless they ask for a reduction or consider switching. The difference can add hundreds of dollars to your monthly repayments, and most people in South Melbourne don't realise how much they're overpaying until they compare what's available elsewhere.

When to compare your current rate with the market

You should compare rates whenever your fixed term ends, when you hear about rate drops in the news, or at least once every 12 months if you're on a variable loan. The market shifts constantly, and what was competitive two years ago often isn't today. Even a reduction of 0.3% to 0.5% can make a meaningful difference to what you pay each month and over the life of the loan.

Consider a borrower in South Melbourne with $600,000 remaining on their mortgage at 6.2% variable. If they could refinance to a new lender offering 5.7%, their monthly repayments would drop by around $180. That adds up to more than $2,000 a year without changing the loan term or making extra repayments.

What a high interest rate actually looks like in South Melbourne

A high rate is anything sitting more than 0.4% to 0.6% above what similar borrowers are being offered for the same loan type and deposit size. If you're paying 6.5% variable and new customers with a similar profile are being quoted 5.9%, you're paying too much. The comparison rate helps here, as it includes most fees and gives a clearer picture of the true cost, but it's not the only number that matters.

Location can also play a role. South Melbourne properties, particularly apartments close to the CBD and light rail corridors, often attract strong lender interest due to high demand and liquidity. Borrowers with equity in these areas sometimes have more options to negotiate or switch than those in outer suburbs where lenders perceive higher risk.

How to check if you're overpaying without a full application

Start by calling your current lender and asking what rate they'd offer if you were a new customer today with your deposit size and loan amount. Then compare that with what you're actually paying. If there's a gap of more than 0.2%, ask them to match it. Many lenders will reduce your rate to keep you, especially if you have a solid repayment history and decent equity.

If they won't move or only offer a token reduction, it's worth speaking to a mortgage broker who can show you what other lenders are quoting without you needing to submit multiple applications. This gives you a clear view of whether switching makes sense once you factor in any discharge fees or application costs.

Fixed rate break costs and when they outweigh the savings

If you're still locked into a fixed rate, breaking early usually triggers a break cost calculated by your lender. This cost depends on how much time is left on your fixed term and how far current rates have moved since you locked in. If rates have dropped significantly, the break cost can run into thousands of dollars and may cancel out any savings from switching.

In most cases, if you have less than six months remaining on a fixed term, it's worth waiting. If you have 18 months or more and the rate difference is substantial, the break cost might still be worth paying. A loan health check can model this out with your specific numbers so you're not guessing.

The role of equity and loan size in what rate you'll be offered

Lenders price risk, and borrowers with more than 20% equity and larger loan balances often qualify for lower rates than those with minimal equity or smaller loans. If your property value has increased since you bought, particularly in high-demand pockets like South Melbourne's warehouse conversion precincts or near Albert Park Lake, you may now have more equity than when you first borrowed.

That additional equity can unlock rate discounts or access to lenders who reserve their lowest rates for borrowers with a loan-to-value ratio under 70%. If you're unsure what your property is worth now, a broker can help you assess whether your equity position has improved enough to justify a rate review or switch.

Why some borrowers stay on higher rates even when they know

Switching lenders involves paperwork, a new application, and usually a property valuation. For some people, the effort feels like more trouble than it's worth, especially if the monthly saving is only $100 or $150. But over a 25-year loan term, even a modest rate reduction compounds into tens of thousands in interest saved.

Another common reason is uncertainty about approval. Borrowers who are self-employed, have changed jobs recently, or have had a dip in income sometimes assume they won't qualify. In our experience, many of these borrowers still have strong applications, particularly if their borrowing capacity has been assessed properly and their living expenses are reasonable. Assumptions about eligibility often cost more than the actual risk of applying.

Call one of our team or book an appointment at a time that works for you. We'll review your current rate, show you what's available, and help you decide whether switching makes sense for your situation.

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