Mar 5, 2020 8:02:38 AM

Is Your Lender Charging You Loyalty Tax?

Topics: Financial Health, Refinancing, Home Loan Rates, Home Loans 0

Your “set and forget” mindset could be costing you. As much as 4%, say the experts. That’s the amount of extra interest some homeowners are paying each year in “Loyalty Tax”. If you haven’t reviewed your mortgage recently, you could be doing the same. Read on to find out why it’s imperative you review your mortgage regularly and avoid paying “Loyalty Tax”.


What is Loyalty Tax?
Many service providers use price deals to entice new customers. But once these new customers are on board, their pricing slowly creeps up. This is commonly known as a “Loyalty Tax”.

What it means really is that those loyal, long-serving customers are funding the special deals offered to new clients. And it’s not just service providers charging loyalty tax: Lenders appear to be doing the same!

In its February Statement on Monetary Policy, the Reserve Bank of Australia (RBA) noted that borrowers with older mortgages could be paying considerably higher interest rates than those with new loans.

Even more alarming is that the difference between old and new home loan interest rates tends to increase with the age of the loan. So those on a variable home loan taken out four or more years ago, could be paying as much as 40 basis points more than those on newer loans.

The RBA has urged customers to shop around to get a better deal on their home loan, particularly if you took your loan out a while ago.

Why wouldn’t you want to pay less?
According to a recent survey by Finder, one out of five Aussies won’t consider refinancing to a new lender even if it means a better deal. The survey uncovered that it’s largely down to a lack of motivation around making a change and a false sense of loyalty to their lender.
That loyalty to their lender is costing them though.

The survey also uncovered a general lack of knowledge around interest rates with nearly half of all Australians surveyed not sure of their existing interest rate. 35% of Australians feel they're being ripped off by their current lender, and just 199,000 refinanced their mortgage in the last 12 months – an insignificant proportion of Australia’s 6 million residential mortgages!

You can read the full report here – it’s well worth a read!

Refinancing could save you money that you can spend somewhere else
If you’ve held your current mortgage for a year or more, you’re probably already paying a lower interest rate. But it’s worth checking your rate with your lender’s website to see how your rate compares with the low rates offered to new borrowers.

If you’ve held your mortgage for longer, please get in touch. We would love to help you find a better interest rate and save you money. Our brokers are experienced at working across a range of lenders and can find the best deal to suit your circumstances.


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.