Why it pays to shop around as RBA rate hikes loom
The RBA has warned that interest rate hikes are on the cards — but borrowers can still protect themselves by doing one simple thing.
Throughout much of 2025, the expectation has been that interest rates would continue to go lower, offering mortgage holders some degree of respite from what has been the largest and swiftest relative rises in interest rates in the nation’s history.
But on Tuesday, that all came crashing down.
When Reserve Bank Governor Michele Bullock was quizzed at a press conference earlier this week on what was the more probable outcome, interest rates going down or going up? Bullock replied:
“I don’t think there are interest rate cuts on the horizon for the foreseeable future.”
This comes following a significantly higher than expected first print from the new and improved monthly Consumer Price Index (CPI) from the Australian Bureau of Statistics (ABS), with both headline inflation and the RBA’s more preferred metric, the trimmed mean, now to the upside of the 2-3 per cent target range.
Despite lower rates from the RBA potentially being off the cards for the foreseeable future, for the average mortgage holder, there are still potential opportunities to secure a cheaper mortgage.
How long to break even
Refinancing a mortgage to a lower rate certainly offers the opportunity for significant savings, but there are some short-term costs to consider.
Around 90 per cent of lenders assessed by comparison website Finder charge a mortgage discharge fee, with most charging between $150 and $400, and the average fee levied coming in at $307.
Westpac, CommBank and NAB have discharge fees of $350, while ANZ charges $160.
There are also state government fees to consider, between $100 and $200, with the average coming in at $130.
Based on a $500,000 mortgage shifting from paying the average owner-occupier variable rate to one of the more favourable deals on offer (5.52 per cent per annum versus 4.89 per cent), this would save our hypothetical household $194 per month.
In less than 10 weeks, the average fixed costs of shifting to a more favourable lender would be recouped.
This would be accomplished more swiftly still for those with a larger mortgage.
Relative costs
In the years since the pandemic arrived on Australia’s shores, the pathway for mortgage rates has been a deeply volatile one.
On one hand, it has delivered the highest cash rate in more than a decade, but on the other hand, it has also provided mortgage holders with the lowest interest rates in Australia’s history.
The opportunity to secure a long-duration (three years or more) fixed-rate mortgage in particular was an extremely lucrative one.
For example, in October 2021, the average rate for a new fixed-rate mortgage of three years or less was 2 per cent.
If a household with a $500,000 mortgage took advantage of that opportunity, it would have saved over $40,000 in mortgage repayments over the next three years.
Even now, there are still opportunities for mortgage holders to save.
Based on data from comparison websites Finder and Canstar, there are a number of different options for mortgage refinancing at an average rate of 0.62 percentage points lower than the payable RBA average.
On a $500,000 mortgage, pursuing the cheaper option will save $2,300 per year, with those with $1 million mortgages saving $4600.
Over the course of a 30-year mortgage, the lower rate would save a household with a $500,000 mortgage over $70,000, with a household holding a $1 million mortgage saving over $140,000.
But for households paying a higher than average of 6.5 per cent per annum, 1.61 percentage points above the current crop of more desirable options, the savings would be even greater.
For those facing a higher-than-average mortgage rate scenario, refinancing to a cheaper option would save $6,100 per year, with those holding the larger $1 million mortgage saving $12,200.
Over the course of a 30-year mortgage, shifting to a lower rate would save a household with a $500,000 mortgage over $183,000, with a household holding a $1 million mortgage saving over $367,000.
An ongoing task
While securing a great deal on a mortgage in the present can be a major boon to a household’s financial fortunes, on a longer-term time horizon, they tend to eventually fall back into the middle of the pack.
By periodically monitoring what mortgage rates are on offer at other lenders, a household can ensure they are getting the best possible deal and keeping their mortgage payments as low as possible.
For example, if what is today a great mortgage rate falls to the middle of the pack after five years and a household doesn’t refinance to more favourable terms, over the course of the remaining 25 years of on a $500,000 mortgage they could be paying over $65,000 more on their loan, based on an average gap between some of the best rates on offer and the current payable variable rate.
The takeaway
While the consensus is increasingly that the next move in interest rates from the RBA will be up, there may be options for mortgage holders to consider to reduce the cost of their monthly mortgage payment.
By shopping around different lenders and considering how the different variable or fixed-term options suit a household’s individual circumstances, the savings can be significant, particularly if one is already paying a higher-than-average mortgage rate.
Ultimately, it pays to shop around or attempt to negotiate a lower mortgage rate with an existing lender, with potentially disproportionate savings on offer for those willing to put in the relatively few number of hours to explore a household’s options.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator
Originally published as Why it pays to shop around as RBA rate hikes loom
