Banks spend a great deal winning new customers. Introductory pricing, cashback offers and advertising are aimed at people about to take out or move a loan. The borrower who signed up years ago and has paid on time every month rarely gets the same attention. In home lending this pattern has a name: the loyalty tax.
What the loyalty tax is
The loyalty tax is the gap between the rate a lender offers new borrowers and the rate it keeps charging the customers it already has. It is not a fee that appears on a statement. It builds quietly, because the discount on a new loan tends to be larger than the discount on an older one, and existing-customer rates do not always move in step with the offers made to newcomers.
The Australian Competition and Consumer Commission examined this in its Home Loan Price Inquiry, which focused on the obstacles that stop borrowers from switching to another lender. The short version: a loan that was competitive at settlement can sit well behind the market a few years later, and nothing prompts the borrower to notice.
Why loyal customers end up paying more
- Discounts are set at the start. Most variable loans are priced as a standard rate less a negotiated discount. The discount you received at settlement generally stays fixed, while the discounts offered to new customers change with competition.
- Nobody reminds you. Lenders are not required to tell you a better-priced loan exists, in their own range or elsewhere.
- Switching feels like work. Paperwork, valuations and the fear of being declined keep many people where they are, even when their circumstances have improved.
How to review your current loan
A review does not have to start with a decision to leave. It starts with knowing what you have.
Gather the facts
- Your current interest rate, whether it is variable or fixed, and when any fixed period ends.
- The remaining loan term and current balance.
- Your repayment amount and whether you are paying principal and interest or interest only.
- Ongoing fees, such as annual package fees or account-keeping charges.
- Features you use, such as offset or redraw, and features you pay for but never touch.
Check what your lender offers new customers
Compare your rate with what your lender currently advertises for the same loan type and loan-to-value ratio. If there is a meaningful gap, you have a reason to call and ask for a pricing review. Many lenders have a retention team for exactly this conversation.
Reconsider your position
Your situation has probably changed since settlement. If your property has risen in value or you have paid down the balance, your loan-to-value ratio may be lower, which can open pricing tiers that were not available before. Income, employment and other debts also matter, because a new lender assesses the whole picture.
What a broker compares
A mortgage broker puts your loan beside the alternatives and shows you the differences in plain terms. At Oakwood Finance that comparison covers more than the headline rate.
- Interest rate and comparison rate, so fees are counted alongside the rate.
- Total cost over a realistic time frame, including application, valuation, settlement and discharge costs, rather than only the first year.
- Loan structure, such as whether an offset account, split loan or interest-only period suits how you manage money.
- Lender policy, including how each lender treats your income type, your property and your existing commitments. A loan is only useful if the lender will approve it.
- Flexibility and service, such as extra repayments, redraw, portability if you plan to move, and turnaround times.
The broker also prepares the application and manages the discharge of your existing loan. Oakwood Finance Pty Ltd arranges credit as Credit Representative 561236 of Finsure Finance & Insurance Pty Ltd, Australian Credit Licence 384704. Lenders make their own assessment and decide whether to approve.
Costs to weigh before switching
Refinancing is not always the right answer, and a proper comparison includes the cost of moving.
- Break costs if you leave a fixed rate early. These can be significant, so confirm them with your lender in writing.
- Discharge and settlement fees on the loan you are paying out, and government registration fees on the new mortgage.
- Application and valuation fees with the new lender, if they apply.
- Lenders mortgage insurance, which may apply again if your equity is below the lender’s threshold. Ask whether part of your current premium can be refunded.
- Loan term. Resetting to a new 30-year term can reduce the monthly repayment while increasing the total interest paid. Ask for a term that matches what remains on your current loan.
Our calculators can help you test the numbers before committing.
When staying put is reasonable
Sometimes the review ends with no change. If your lender matches the pricing you found elsewhere, the costs of moving outweigh the difference, or you are part way through a fixed term with high break costs, staying can be the sensible outcome. The point is to decide on current facts rather than habit, and to look again in a year or two.
If you would like your current loan reviewed against the market, see our refinancing page or book a consultation with an Oakwood Finance broker. This article is general information only and does not take your objectives, financial situation or needs into account.