Australian banks routinely charge their existing mortgage customers higher rates than they offer to new customers. This silent premium — often 0.3% to 1.5% above current market rates — is what's known as the loyalty tax. And it's costing billions of dollars a year across the country.
0.5–1.5%
Typical loyalty tax gap
$7,200+
Annual cost (on $600K at 1.2%)
2+ yrs
When loyalty tax typically starts
$0
Broker refinance fee
How the Loyalty Tax Works
When you take out a home loan, you're typically offered the lender's current best rate for new customers. Over time, as interest rates change and the lender releases new products, they advertise lower rates to attract new business — but don't automatically pass these rates on to you as an existing customer.
The result: a new customer taking out an identical loan at the same bank today may pay 0.5%–1.5% less than you. For every year you stay without reviewing your rate, this gap can widen further.
How to Check If You're Paying the Loyalty Tax
Three quick steps:
- Find your current interest rate — check your monthly statement, your online banking, or call your bank
- Check what the same bank is offering new customers today — their website or a quick Google search shows current advertised rates
- Compare the two numbers — if there's a gap of more than 0.3%, you're very likely paying a loyalty tax
| Scenario | Your Rate | Market Rate | Annual Loyalty Tax |
|---|---|---|---|
| Loan $400K, 0.3% gap | 6.80% | 6.50% | ~$1,200 |
| Loan $600K, 0.8% gap | 7.20% | 6.40% | ~$4,800 |
| Loan $700K, 1.2% gap | 7.50% | 6.30% | ~$8,400 |
Approximate calculations. Actual savings depend on exact rates, loan balance, and term remaining. Use as a guide only.
Why do banks do this?
Banks know most customers won't bother to review their rate — the switching process feels complex and the cost of inaction is invisible on a day-to-day basis. The ACCC has investigated this practice. The RBA has repeatedly commented on the "back book vs front book" rate disparity. The reality: banks depend on customer inertia for a significant portion of their profitability.
Want to know exactly how much your loyalty tax is costing you?
Give us your loan balance and current rate — we'll calculate your loyalty tax and show you what you could be paying instead.
Or
Option 1: Ask Your Bank for a Rate Review
The simplest first step — call your bank and ask for a rate review. Reference what competitor lenders are currently offering. Many banks will match or come close to competitor rates to avoid losing your business. The script:
"I've been a customer for [X years]. I've noticed you're offering [Y%] to new customers, but I'm currently paying [Z%]. I'd like to review my rate — can we discuss what you can offer me?"
Success rate: moderate. Banks often offer 0.1–0.3% reductions through this approach — better than nothing, but rarely brings you to the best available market rate. The more effective approach is having a genuine alternative ready to go.
Option 2: Refinance to a Better Lender
The most powerful way to eliminate the loyalty tax is to refinance to a lender currently offering competitive rates. With a broker, this process typically takes 2–4 weeks and involves:
- Broker runs a rate comparison across 30+ lenders for your profile
- Best lender is identified and application submitted
- Property valuation is ordered by new lender
- Formal approval issued
- Loan settlement — old lender is paid out, new loan begins
- First repayment at lower rate begins within 30 days
Many lenders offer cashback deals (typically $2,000–$4,000) to refinancing customers, which offsets the minimal costs of switching (discharge fee from old lender: ~$150–$350; new loan establishment: usually waived).
When Does Refinancing NOT Make Sense?
- If you're in a fixed-rate period — break costs can be enormous (tens of thousands) and must be calculated before deciding
- If your loan balance is very small (under $150,000) — the saving from a rate reduction is smaller in dollar terms
- If you plan to sell within 12 months — the refinancing costs may not be recovered in time
- If your financial situation has significantly worsened since your original loan — you may not get approved for the same loan amount at a new lender
How Often Should You Review Your Rate?
Every 12–24 months is the generally recommended interval. The mortgage market moves — new products, rate cuts, cashback deals — and what was competitive 2 years ago may not be today. A broker can do a free rate review in 20 minutes. See our guide: Should You Refinance in 2026?
At Mortgagefy, we do free rate reviews for existing homeowners. If you haven't reviewed your rate in 2+ years, there's a strong chance we can reduce your repayments immediately. Call 0432 634 648 — the review is free and takes one call.
Calculate Your Loyalty Tax Saving
Tell us your current rate and balance — we'll show you what's available today and whether refinancing makes sense.
Ready to talk to a broker?
Get a straight answer — no obligation. Mon–Sat 9am–7pm.