Key Takeaways
• Even a small drop in your interest rate can save you hundreds a month and tens of thousands over your loan.
• On a $500,000 loan, lowering your rate by 0.5% saves roughly $160 a month, or around $58,000 over a 30-year loan.
• Switching costs are usually small and recouped within months, so the savings far outweigh them.
• The exact saving depends on your rate, loan size, and term, and a broker can calculate yours for free.
It is easy to assume that switching home loans is not worth the hassle, but the numbers often tell a different story. A lower interest rate, even by a small margin, can put hundreds of dollars back in your pocket each month and save you tens of thousands over the life of your loan. The question is not really whether switching saves money, but how much it could save you specifically.
This guide puts real numbers on it, showing what different rate drops can mean across different loan sizes, so you can see the kind of savings switching might unlock. The figures are illustrative, but they make the potential very clear.
Seeing the numbers is often what turns 'maybe one day' into 'let us look into this'. If switching is on your mind, you will find common questions about switching answered on our site, and we are always happy to work out your exact savings.
How the Savings Add Up
Before the numbers, it helps to understand why even a small rate cut makes such a difference.
Your home loan is large and long, so a small change in the interest rate has an outsized effect. A lower rate reduces both your monthly repayment and the total interest you pay over the years. Because that saving repeats every month for the life of the loan, often 25 or 30 years, even a fraction of a percent compounds into a substantial sum. This is also why staying on an uncompetitive rate quietly costs so much: the difference works against you month after month.
Real Numbers: What a Lower Rate Saves
Here is what different rate reductions look like in dollars, across a few common loan sizes. These are illustrative figures for a 30-year loan, to show the scale. Dropping your interest rate by 0.5% saves roughly:
• On a $400,000 loan, around $130 a month, or about $47,000 over the life of the loan.
• On a $500,000 loan, around $160 a month, or about $58,000 over the life of the loan.
• On a $600,000 loan, around $190 a month, or about $70,000 over the life of the loan.
And if the gap is larger, the savings grow accordingly. Dropping your rate by a full 1% saves roughly:
• On a $400,000 loan, around $255 a month, or about $92,000 over the life of the loan.
• On a $500,000 loan, around $320 a month, or about $115,000 over the life of the loan.
• On a $600,000 loan, around $385 a month, or about $138,000 over the life of the loan.
Even at the smaller end, these are real, significant sums, and they show why a competitive rate matters so much.
Why So Many People Are Overpaying
If the savings are this large, you might wonder why more people do not switch, and the answer is revealing.
Many borrowers are paying more than they need to simply because they have not reviewed their loans in a few years. Lenders tend to offer their sharpest rates to new customers, so longstanding borrowers can drift onto higher rates over time, an effect sometimes called a loyalty tax. Research has found this gap is often around 0.4% to 0.5%, which, as the numbers above show, can quietly cost tens of thousands. The good news is that it is easily fixed once you know how to look.
But What About the Costs?
A fair question is whether switching costs eat into these savings, so let us put them in perspective.
Switching does involve some costs, such as a discharge fee and a few lender and government charges, often totalling a few hundred to around a thousand dollars. When set against savings of $150 or more per month, those costs are typically recouped within a few months, after which the savings are all yours. In other words, the costs are real but small, and they barely dent the long-term benefit. Working out your break-even point, how long the savings take to cover the costs, confirms how quickly you come out ahead.
Finding Your Own Number
The figures above are illustrative, so the real value is in working out your specific savings.
Your actual savings depend on your current rate, your loan size, how long you have left, and the costs of switching. The simplest way to find your number is to compare your current rate with what is available and have someone calculate the difference. A broker can do this for you quickly and at no cost, giving you a precise figure rather than an estimate. One tip: when comparing, aim to keep a similar loan term rather than resetting to a fresh 30 years, so you are comparing like with like.
A Real-World Example: Putting a Number on It
Here is how the savings can look for one borrower, with round figures. Treat it as a guide only.
Priya has a $550,000 loan and is paying 6.9%. After not reviewing it for a few years, she compares the market and finds she could switch to 6.1%, a 0.8% drop. That lowers her repayments by around $285 a month, which is roughly $3,400 a year, putting it back in her budget.
The switch costs her about $800 in fees, which her monthly savings recoup in under three months. Over the years ahead, the lower rate saves her tens of thousands in interest. For the price of a little paperwork, Priya turned an uncompetitive rate into substantial long-term savings.
Where to Read More
To work out your own savings, the Australian Government's MoneySmart service offers a free mortgage switching calculator that shows how much you could save and how long it would take to recover the switching costs.
Frequently Asked Questions (FAQs)
How much can I save by switching home loans?
It depends on your rate, loan size, and how long you have left, but the savings can be substantial. As a guide, dropping your rate by 0.5% on a $500,000 loan saves around $160 a month, or roughly $58,000 over a 30-year loan. A larger rate drop saves even more. The best way to know your figure is to compare your rate with the market and have it calculated.
Is switching worth it for a small rate difference?
Often, yes, especially on a larger loan. Even a 0.5% difference can save well over $100 a month and tens of thousands over the life of the loan, because the savings repeat every month for decades. On bigger loans, small differences matter even more. The key is to weigh the savings against the modest switching costs, which are usually recouped within a few months.
Will the switching costs cancel out my savings?
Almost never. Switching costs, such as a discharge fee and some government charges, usually total a few hundred to around a thousand dollars. Set against monthly savings of $150 or more, those costs are typically recouped within a few months, after which you keep saving. Your break-even point, how long the savings take to cover the costs, shows how quickly you come out ahead.
How do I find out exactly how much I'd save?
The simplest way is to compare your current rate with what is available, then have someone calculate the difference for your specific loan. A broker can do this quickly and for free, giving you a precise saving rather than an estimate. When comparing, keep the loan term similar rather than resetting to a fresh 30 years, so the comparison is fair.
Why am I paying more than new customers?
Often because you have not reviewed your loan in a while. Lenders usually offer their best rates to new customers, so longstanding borrowers can drift onto higher rates over time, sometimes called a loyalty tax. This gap is often around 0.4% to 0.5%, which can quietly add up to a lot. Reviewing your loan or asking your lender for a better rate is the simple fix.
Does switching to a lower rate reset my loan term?
It can, if you let it. Many people refinance into a new 30-year term, which lowers repayments but can add interest over time. To capture the full savings, you can usually choose a term that matches the time left on your current loan, so you are not resetting the clock. It is worth deciding what suits you before switching.
The Bottom Line
Switching home loans is one of the most effective ways to save money, and the numbers prove it. A rate drop of just 0.5% on a $500,000 loan puts around $160 a month back in your pocket and saves roughly $58,000 over the life of the loan. Larger gaps save even more, and on larger loans, the figures climb even higher. With switching costs usually recouped within months, the long-term benefit is hard to ignore.
The figures here are illustrative, so the real value comes from working out your own. If you have not reviewed your loan in a couple of years, there is a good chance you are paying more than you need to. It costs nothing to find out, and a broker can calculate your exact savings in minutes. If you would like to see how much you could save, we would be glad to run the numbers with you.