Mortgage wars: how borrowers are getting a home loan discount without refinancing

September 19, 2023

The cash rate is widely tipped to have reached its peak, but that doesn’t mean it’s all downhill for borrowers.

Mortgage Choice data shows lenders have continued to lift rates out of cycle on some fixed- and variable-rate home loan products, despite no move by the Reserve Bank of Australia for three consecutive months.


The cash rate has sat at 4.1% since June, but lenders are still making moves to their home loan rates. Picture: Getty

But there’s substantial savings to be made for borrowers who get on the front foot, and they may not necessarily need to refinance to reap the benefits, according to Mortgage Choice broker Deslie Taylor.

“Lenders are heavily focused on retention to keep that business on their books,” Ms Taylor said. “So our focus is every six months in my office we’re doing quoting for clients to get their existing lender to offer them a better interest rate.”

Ms Taylor says depending on factors such as a borrower’s loan to value ratio, a variable rate of 5.79% to 5.84% is considered competitive in the current market.

Lenders fight to retain customers

RBA data shows early signs that the so-called ‘loyalty tax’ has started to unwind, although existing borrowers are still paying more than new borrowers on average.


In July, existing borrowers were paying an average variable rate of 6.23% while new customers were paying 5.95% – a gap of 0.28%.

That’s narrowed from a 0.5% gap at the start of 2023, when existing borrowers were paying 5.46% on average, compared to 4.96% for new customers.

“Had we have had this conversation a month ago, I would have said for new-to-bank clients, the interest rates are fantastic and existing clients don’t feel the love, but right now, a lot of the lenders are showing them that love,” Ms Taylor said.

“We’re finding now – and it’s only been in the last couple of weeks that most of the retention teams have got on board – but you find that lender retention teams are offering better, competitive rates to retain clients.

“But how long is that going to last? Because historically, they will always offer new clients a better interest rate than an existing client.

“The thing is, the lender will – depending on what business they want – they will adjust their interest rate to be either best in market or in line with market to achieve market share. And once they’ve got their market share they’ll adjust their rates accordingly. So it’s really just a game.”

Last month, Australia’s largest mortgage lender, the Commonwealth Bank, said retaining existing customers is a key focus for the bank as a large proportion of fixed-rate home loans expire in the months ahead.

With fewer cashback deals now on offer, which subsidise or cover the cost of refinancing, Ms Taylor says switching to a new lender may not always financially stack up.

“It all depends on what the cost is, versus the saving,” she said.

“If you’re looking at 0.5% or something crazy, obviously there’s a financial benefit to refinance.”


Borrowers who haven’t refinanced since interest rates began rising may be paying a premium. Picture: Getty

While an interest rate discount of 0.5% may not sound like much, Ms Taylor says over the life of the loan it amounts to a $58,000 saving for a borrower with a $500,000 home loan.

On a $750,000 mortgage the savings add up to $87,500 over the loan life, and a borrower with a $1 million home loan could reduce their interest bill by $116,000 by getting a 0.5% discount on their home loan.

But the savings could be even more substantial for borrowers who have remained complacent over the past 18 months.

RBA data shows the average owner occupier variable home loan was sitting at 2.86% in April 2022, before the first cash rate hike.

Had their lender passed on each hike in full, their mortgage rate would now sit at 6.86%, more than one percentage point higher than the most competitive rates on the market.




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