Nick Bruining: As prices soar (and equity rises), there’s never been a better time to cut your mortgage rate

With most lenders now having passed on the recent Reserve Bank rise in interest rates to borrowers, now is the time to ensure you’re getting the best deal. Even borrowers operating under honeymoon loan arrangements might be in a position to save thousands of dollars a year in repayments. Mortgage broking veteran Gill McLean said now was a good time to shop around for the best deal. “You’ll find that lenders are hungry for business. Some of the usual impediments to changing lenders, like application fees, just aren’t being charged at the moment,” Ms McLean said. One major factor has been the spectacular growth in property prices over the past few years. Perth’s median house price has surged a staggering 40.1 per cent since 2024, meaning that for most West Australian families, their equity in the family home has risen sharply. “Significantly, the growth in value means that many borrowers don’t realise they have fallen under the magical 80 per cent loan-to-valuation ratio,” Ms McLean said. The LVR is worked out by calculating the percentage of the loan’s value as a portion of the total value of the home. When it is higher than 80 per cent, lenders typically impose protection mechanisms like lender’s mortgage insurance, which is a one-off premium paid by the borrower that can add tens of thousands of dollars to the total loan. If a borrower wants to change lenders when the LVR is over 80 per cent, they usually have to factor in a new LMI premium payment in the change-over cost. “There’s no LMI once your loan is under 80 per cent and, in fact, with some lenders an even lower LVR — like 60 per cent — will get you an additional discount on the interest rate charged,” Ms McLean said. While a mortgage broker with a wide selection of lenders to choose from is your best bet, the better mortgage brokers will try to get you a better deal with your existing lender. “It’s cheaper for a lender to hang onto an existing customer than to sign up a new one, so they’ll almost certainly have a close look,” she said. According to research house Canstar, the average package-type variable home loan is still under 6 per cent, with the lowest on offer last week at 5.14 per cent. Canstar’s data insights director Sally Tindall said borrowers should keep an eye on the market with rates predicted to keep rising through 2026. “For an owner-occupier who’s paying down their debt, a competitive rate is now around 5.50 per cent,” Ms Tindall said. “If you’re sitting on a rate starting with a 6, there’s no sugar coating it, you’re paying a loyalty tax.” Ms McLean said the prospect of further rate rises was tempting some people to fix all or part of their mortgage on a one-year fixed rate, which can still be found for under 5.50 per cent. “They have the certainty of fixed repayments for the next few months at least, allowing them to make adjustments to handle any future increases,” she said. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association