The Mortgage Loyalty Tax: Why Staying with Your Lender Could Cost You Thousands

If you've had your home loan for more than 2 years and haven't renegotiated, there's a good chance you're paying a "loyalty tax" - a higher interest rate than what your bank offers new customers. The RBA and ACCC have both called out this practice, and in 2026, with rates at 3.85%, the cost of loyalty has never been higher. Here's how to check if you're affected and what to do about it.

What Is the Mortgage Loyalty Tax?

The loyalty tax isn't an actual fee on your statement. It's the gap between the rate you're paying and the rate your bank is advertising to attract new customers. Banks invest heavily in acquiring new borrowers with sharp rates and cashback offers, but once you're locked in, your rate quietly drifts upward relative to the market.

How Much Is It Costing You?

Even a small rate gap adds up to thousands over time:

How to Check If You're Paying a Loyalty Tax

Here's a quick 3-step check you can do right now:

Step 1: Find Your Current Rate

Log into your online banking or check your latest loan statement. Look for your current variable interest rate (not the comparison rate).

Step 2: Check Your Bank's New Customer Rate

Visit your bank's website and look at the rate they're advertising for new home loan customers with similar loan features (owner-occupier, P&I, same LVR bracket).

Step 3: Calculate the Gap

If your rate is more than 0.15% above the new customer rate, you're likely paying a loyalty tax. If the gap is 0.30% or more, it's time to take action.

3 Ways to Fight the Loyalty Tax

Option 1: Call Your Bank and Negotiate (Free)

This is the easiest first step. Call your lender's retention team and ask for a rate review. Key phrases that work:

• "I've noticed your new customer rate is X% - can you match that for me?"
• "I've received a competing offer from [lender] at X% - what can you do?"
• "I'd prefer to stay but I need a rate that's competitive"

Success rate: Banks will often reduce your rate by 0.15-0.40% to retain you, especially if you mention a competing offer. This alone could save $1,000-$3,000/year.

Option 2: Get a Broker to Negotiate for You (Free)

A mortgage broker can negotiate with your current lender on your behalf and simultaneously source competing offers from 40+ lenders. This gives you maximum leverage because the threat of switching is real and backed by an actual pre-approved alternative.

Option 3: Refinance to a New Lender (Best Savings)

If your bank won't budge or the gap is too large, switching lenders typically delivers the biggest savings. Many lenders also offer cashback of $2,000-$4,000 when you refinance to them.

Why Banks Get Away with It

The loyalty tax persists because of borrower inertia. Banks know that switching feels hard, and most people don't bother. Consider these facts:

• Only 30% of borrowers have ever negotiated their rate with their bank
• The average borrower stays with their lender for 4-5 years without reviewing their rate
• Banks spend millions on acquisition offers (cashbacks, low rates) for new customers because they know existing customers rarely leave
• The RBA's own research confirms that existing borrowers consistently pay higher rates than new ones at the same bank

Don't Let Inertia Cost You $20,000+

Over the remaining life of a typical mortgage, the loyalty tax can add up to $20,000-$50,000 in unnecessary interest payments. The fix takes less than an hour:

1. Check your rate against your bank's new customer rate (5 minutes)
2. Call your bank or speak to a broker (30 minutes)
3. If needed, start the refinancing process (your broker handles the rest)