The Loyalty Tax: What Staying With Your Lender Could Be Costing You
Lenders save their sharpest rates for new customers. How the loyalty tax works, how to spot it on your loan, and two ways to stop paying it.
Amit Kumar Basnet
Director & Lending Specialist
- Banks offer aggressive rate discounts to attract new customers while quietly letting existing loyal borrowers pay higher margins.
- The ACCC's home loan inquiry confirmed that loans older than 3 years pay significantly higher interest rates on average.
- On a $700,000 Sydney mortgage, a 0.50% loyalty tax gap costs approximately $3,500 in avoidable interest every year.
- The 'reprice call' allows your broker to request a discretionary discount from your current bank without you having to switch lenders.
- Annual mortgage reviews ensure you maintain top-tier pricing throughout the entire life of your loan.
How it happens (no villain required)
Lenders compete hard for new business, so advertised rates and new-customer discounts keep getting sharper. Existing borrowers, meanwhile, sit on the pricing they signed up with. Rate cuts get passed on partially or slowly; discretionary discounts offered to newcomers never reach the 'back book.' No one decides to punish you — the system simply rewards the customers who are shopping and quietly drifts everyone else upward.
Australia's competition watchdog (ACCC) found exactly this in its home loan pricing inquiry: on average, the longer a loan had been open, the bigger the gap between what existing borrowers and new borrowers paid.
On a $750,000 loan balance, an extra 0.60% in loyalty tax costs $4,500 per year — money that could otherwise pay down your principal or build household savings.
Signs you're probably paying it
Look at your most recent loan statement. If any of the following apply, you are almost certainly paying a loyalty tax:
- Your loan is more than two or three years old and you've never asked for a reprice.
- You rolled off a fixed term onto the lender's revert rate and left it there.
- Your lender advertises rates to new customers that are lower than what you're paying for the same kind of loan.
- You don't actually know your rate. No judgement — most people don't. That's precisely what the pricing model counts on.
Two ways to stop paying it
1. The reprice call. Sometimes the fix doesn't require moving at all. A well-argued repricing request — backed by what other lenders would offer you — often lands a discount within days, because keeping you is cheaper than replacing you. This is routine work for a broker: we know each lender's discretionary pricing and how to ask.
2. Refinancing. If your lender won't sharpen up, another one will. Refinancing means real admin — discharge forms, a new application, settlement — which is exactly the friction the loyalty tax hides behind. A broker absorbs that friction: we run the comparison across 30+ lenders, manage the paperwork, and only recommend the move if the numbers genuinely clear the switching costs.
The habit that beats the tax permanently
A loan that was right when you got it doesn't stay right by itself — rates move, lenders reprice, your life changes. The durable fix is a yearly review: one short check of your rate against the current market. It's built into how Rivo works — every client's loan gets a free annual health check, because our job doesn't end at settlement.
When did you last check your rate?
Send us your current loan details — if you're already on a great deal, we'll happily tell you so. If you're not, you'll see exactly what's possible before you decide anything.
Common Questions Answered
Can I get a rate cut without changing banks?
Yes. Many Australian lenders will lower your interest rate if an accredited broker lodges a formal pricing review based on competing market offers.
How often should I review my home loan rate?
We recommend reviewing your home loan every 12 to 18 months, or whenever the Reserve Bank alters monetary policy.
Want tailored advice for your situation?
Don't navigate complex lending policies alone. Our brokers have access to 50+ lenders and compare thousands of loan products to secure the optimal structure for you.
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