Could You Be Paying A ‘Loyalty Tax’ On Your Home Loan?

We understand that life gets busy, and the thought of refinancing can conjure images of huge amounts of paperwork, forms and long meetings with banks. But this thinking and a “set and forget” mindset could be costing you.

Recent data from the Reserve Bank shows the gap between the variable interest rates being offered on new loans compared to outstanding loans – often called a ‘loyalty tax’ – is approximately 0.5%.

Although a difference of 0.5% may not appear significant initially, it could lead to a variation of tens or even hundreds of thousands of dollars throughout the duration of a loan.

If you haven’t reviewed your mortgage recently, you could be doing the same.


What is Loyalty Tax?

Price promotions are frequently used by many businesses to attract new customers. However, once these new customers become established, the cost of the service gradually increases.

Essentially, long-standing customers are subsidizing the special offers provided to new clients. The problem of the Loyalty Tax is not limited to service providers; lenders can often be practicing it too!

This was pointed out by the Reserve Bank of Australia (RBA) in the February Statement on Monetary Policy, highlighting that borrowers with older mortgages might be paying substantially higher interest rates than those with new loans.

The difference between old and new home loan interest rates also tends to widen as the loan ages.

The RBA has urged customers to seek better deals on their home loans, particularly if they took out their loans a while back.

Why don’t people refinance, and how we can help

It’s too hard – Our online portal can simplify the process with simple digital forms you can fill in at your leisure.

Lack of time – We do the hard work searching lenders and can even meet via zoom or at your home or office to save time.

Too much paperwork – most paperwork can now be submitted digitally via our customer portal. We can even retrieve the required bank statements digitally for you.


Whether you’ve put refinancing into the ‘too hard basket’, are unsure if it’s worth doing, or simply just want your finances reviewed in this changing rate environment, just let us know. We’re happy to help.

*Sources: https://www.rba.gov.au/statistics/interest-rates/ . https://www.moneymag.com.au/cost-of-loyalty-mortgage