Variable rates are back in the 5s - so why is your loan still in the 6s?

Here's something that doesn't happen often: the Reserve Bank held the cash rate steady in June, and lenders started cutting anyway.

Since then, eighteen lenders have trimmed their variable home loan rates out-of-cycle. Fifteen now have variable rates sitting under 5.9%, and some fixed rates have dropped by as much as half a percent. None of that came from the RBA - the cash rate hasn't moved since June, still sitting at 4.35% after three rises earlier in the year.

So what's going on? Competition. Lenders want good borrowers on their books, and right now they're prepared to pay for them.

The catch: those rates aren't being posted to you

Here's the part that matters if you already have a home loan. The sharpest rates in the market are almost always reserved for new customers - the people walking in the door.

Existing borrowers, the ones who've been quietly paying on time for years, tend to stay on whatever rate they landed on at settlement, drifting a little higher with every RBA move and rarely drifting back down.

There's a name for this: the loyalty tax. And after three rate rises this year, it's costing more than it used to.

We're seeing it every week at the moment. Borrowers come in assuming their rate is roughly "market", and it turns out they're 0.3%, 0.5%, sometimes more above what the same lender is offering a new customer for the same loan. On a $750,000 loan, a 0.30% difference is more than $2,200 a year. That's not a rounding error - that's a term of school fees, a chunk of the offset, a family holiday.

Why lenders are unusually motivated right now

Mortgage stress and costs of living haves risen for four consecutive months following this year's rate rises. That sounds like bad news - and for plenty of households it is - but it has a side effect that works in borrowers' favour: lenders are fighting hard over the borrowers who are in good shape.

If your repayment history is clean and your equity position is solid, you're exactly who those eighteen lenders cut their rates to attract. Retention teams know it too. Some of the best outcomes we've negotiated this year haven't involved moving lenders at all - just a well-timed conversation with the current one, backed by a genuine alternative on the table.

That's the bit a broker changes. "I'm thinking about leaving" is a bluff. "Here's the offer from one of the 60+ lenders on my broker's panel" is a negotiation.

What a loan health check actually involves

About half an hour, and no cost. We look at:

• Your current rate against what's genuinely available for your loan size, LVR and situation

• The structure - offset setup, splits, whether the loan still matches how you actually use your money

• Whether your current lender will sharpen up, or whether one of the others will treat you better

• Any fixed rate ending in the next six months, and what the plan for the rollover looks like

Sometimes the answer is "you're in good shape, stay put" - and that's worth knowing too. We'll tell you straight either way.

The short version

The cash rate held, the market cut anyway, and the gap between what new customers pay and what existing customers pay is as wide as it's been all year. If your variable rate still starts with a 6, it's worth half an hour to find out why.

Whether you're in Caringbah, Cronulla or anywhere across Sydney, give Stu a call on 0401 641 773 - he's the one you'll work with, from the first chat through to settlement.

Frequently asked questions

Why are lenders cutting rates when the RBA hasn't?

Competition. Lenders fund their loans from more than just the cash rate, and when they want to grow their book they'll trim margins to attract reliable borrowers. Eighteen lenders have cut variable rates out-of-cycle since the RBA's June hold - the cash rate hasn't moved, but the market underneath it has.

What is the home loan loyalty tax?

It's the gap between what a lender offers new customers and what its existing customers are actually paying. Banks tend to reserve their sharpest rates for people walking in the door, while long-term borrowers drift higher with each rate rise. The longer it's been since your loan was reviewed, the wider the gap usually is.

How much could refinancing actually save?

It depends on your loan size, rate and situation, but as a guide, a 0.30% reduction on a $750,000 loan is more than $2,200 a year. Some borrowers find bigger gaps than that; some find they're already well placed. The only way to know is to compare your rate against what's genuinely available for your circumstances.

Does a loan health check cost anything?

No. Brokers are paid by the lender when a loan settles, not by you, and a review takes about half an hour. If the answer is "you're already in good shape", you'll be told exactly that.

Do I have to switch banks to get a better rate?

Not always. Some of the best outcomes come from renegotiating with your current lender - retention teams move much faster when there's a genuine alternative offer on the table. That's a big part of what a broker brings to the conversation.

How long does refinancing take?

Typically two to six weeks from application to settlement, depending on the lender and how quickly documents come together. If your fixed rate is ending in the next few months, starting the conversation now means the new arrangement is ready when the old one rolls off.

The information provided is general in nature and for illustrative and discussion purposes only. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.

Sutherland Mortgage Group - Australian Credit Licence 517192, authorised under LMG Broker Services Pty Ltd.