Should You Stay With Your Current Lender or Refinance?
Your lender has had your business for years. You’ve made every repayment on time. You haven’t asked for anything. And in return, your lender has quietly kept you on a rate that no longer reflects what’s available in the market. This is not a conspiracy; it is simply how home loan pricing works in Australia in 2026. Lenders compete for new customers with their sharpest rates, while existing borrowers are left on older pricing that drifts above the market over time. The question is not whether you should feel loyal to your lender. It is whether a refinancing home loan Australia strategy could save you thousands over the life of your loan. It’s whether staying with them is genuinely the best financial decision for your situation or whether refinancing puts thousands of dollars back in your pocket. At OM Financials, Shyam Maggo and the team compare this exact question for clients across NSW every week.
The Loyalty Tax Is Real: Here’s What It’s Costing You
The term ‘loyalty tax’ describes a simple and well-documented dynamic in Australian lending: existing borrowers are routinely charged more than new customers at the same lender. Some long-term borrowers may be paying higher rates than newer customers or borrowers who have recently refinanced. Even a relatively small rate difference can materially affect repayments over time. This is not a penalty; it is pricing drift. Lenders adjust rates for new business based on competition, funding costs, and market conditions. Existing loans don’t automatically transfer with them unless the borrower actively initiates the transfer.
The average Australian home loan is now $736,259. The average variable rate in Finder’s database sits at 6.84%, while the lowest available refinance home loan rate is 5.35%. On the average loan, that gap yields monthly savings of $708 or $8,496 per year for a borrower who switches to the most competitive rate. Even a modest 0.5% improvement on a $900,000 mortgage saves over $4,500 per year, depending on the loan structure and remaining term.
Switching Isn’t Always the Answer: This Is How to Tell
Refinancing makes financial sense when the savings clearly exceed the costs over your remaining ownership horizon. The real test is not loyalty; it is the total outcome after rate, flexibility, timing risk, and switching costs are weighed. Staying with your current lender makes sense in specific situations. So does switching. Here is the framework for working out which applies to you:
- Stay With Your Current Lender When These Apply
Your lender matches a competitive rate when you ask. Calling your lender to request a rate review is always the first step, and many will reprice rather than lose your business. If the rate they offer closes the gap to within 0.10–0.20% of the best market rate, staying avoids all switching costs with minimal sacrifice.
You are selling or upgrading within 12–18 months if you won’t hold the loan long enough for savings to recover switching costs; refinancing costs you money rather than saving it. The break-even calculation matters.
You are on a fixed rate with significant time remaining. Fixed-rate break costs can run into tens of thousands of dollars. Always request the break-cost figure in writing from your lender before initiating any refinance conversation.
- Switch to a New Lender When These Apply.
Your rate is 0.50%+ above the market, and your lender won’t close the gap. If your lender’s retention offer still leaves you 0.50% or more above the best home loan rates Australia borrowers can access it, switching becomes worth considering; switching recovers the cost of moving, typically within 6–12 months on a mid-to-large loan.
Your loan structure no longer suits you. No offset account access, restricted extra repayments, the wrong repayment type for your current goals (owner-occupier vs investor), or a lender whose policy blocks your next acquisition- these are structural problems rate negotiation alone cannot fix.
You have equity that opens a better rate tier. If your property has grown in value and your LVR has improved below 80%, 70%, or 60%, you may access lower rate tiers at a new lender that your current lender isn’t proactively offering.
What Refinancing Actually Costs So the Maths Makes Sense
The switching costs are real but often smaller than borrowers assume. The typical cost of refinancing a home loan includes:
- Discharge fee (current lender): $150–$500 typically
- Application or establishment fee (new lender): $250–$600 (many lenders waive this)
- Valuation fee: $0–$600 (often free through a broker)
- Government mortgage registration fees: state-dependent, typically $150–$400
The total cost of refinancing a standard variable loan is typically $500–$2,000. If the monthly savings from switching are $400, that cost is recovered in 2–5 months. Beyond that, every month is a genuine, recurring saving. Refinancing activity is projected to increase 15% year-over-year in 2026, driven by lenders competing aggressively for new business with cashback offers, fee waivers, and headline rate discounts.
Always Negotiate With Your Current Lender Before You Apply Anywhere
The most efficient first step before any broker or comparison site is involved is a direct conversation with your current lender. Ask specifically for a rate review and reference the best rate you’ve found elsewhere. Banks have retention teams whose job is to keep your business. Many will offer a discount of 0.10%–0.40% on the spot, particularly if you have a clean repayment history and a loan over $500,000.
If they match within 0.20%, staying is often the simpler outcome. If they won’t move or offer a token discount, that still leaves you materially above the market; that’s your answer. Lenders don’t automatically adjust rates for existing customers; you have to ask. And if asking doesn’t work, moving to a better lender will.
Also Read: Will the RBA Cut Rates Again in 2026? What It Could Mean for Borrowers
How OM Financials Runs the Comparison Across 50+ Lenders
As a trusted mortgage broker Australia clients rely on, OM Financials starts the refinancing conversation by reviewing your current loan rate, balance, remaining term, features, and whether your lender has made any retention offers. We then compare your position against current offers across our panel of 50+ lenders, including major banks, non-bank lenders, and specialist products not available through comparison sites. We calculate the break-even point before recommending anything because a refinance that costs you money to execute is not a refinance worth doing. We’ll tell you that clearly if it applies.
For OM Financials clients across Rouse Hill, Box Hill, Kellyville, Castle Hill, Schofields, Hornsby, and greater NSW, the refinancing review is free, takes one conversation, and gives you a definitive answer on whether to stay or switch, with the numbers to back it up. No obligation. No unnecessary credit enquiries before you decide.
FAQ: Will refinancing affect my credit score?
Answer: A single, well-prepared application to the right lender has minimal credit score impact. The risk comes from multiple applications in a short window, each of which creates a credit enquiry that lenders can see. Working with OM Financials means one targeted application to the most suitable lender on our panel, not four speculative attempts that each register as an enquiry and collectively reduce your score before approval.
The Question Isn’t Loyalty: It’s Whether the Numbers Work
Your lender’s job is to make money. Your job is to manage yourself. Staying with a lender that’s not offering you a competitive rate isn’t loyalty; it’s a cost. In 2026, with refinancing activity rising 15% year-over-year and lenders competing hard for new business, the market is as favourable for borrowers considering a switch as it has been in several years. Whether that means your current lender finally moves on the rate when you ask, or whether a new lender delivers the savings, the answer starts with an honest home loan review.
Book a free consultation with OM Financials. Visit omfinancials.com.au or call Shyam today. As your trusted home loan broker Australia partner, we’ll tell you exactly where your current rate sits against the market, model the switching costs versus savings, and give you a clear, honest recommendation with no obligation.
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