The Loyalty Tax – Why Staying With One Bank Costs You More

The Loyalty Tax – Why Staying With One Bank Costs You More

Banks love loyal customers — not because they reward you, but because loyalty often means you’re paying more than you should. This “loyalty tax” hits homeowners who stick with the same lender for years without checking whether their rate is still competitive.

This guide explains what the loyalty tax is, how it creeps up quietly and how much it could be costing you every month.

1️⃣ What Is the Loyalty Tax?

The loyalty tax is the extra interest homeowners pay simply because they stay with their existing lender for too long.

• New customers get the sharpest rates.
• Existing customers often get left behind.
• Banks rely on homeowners being too busy to check their loan.

Over time, this difference can add hundreds of dollars to your monthly repayments.

2️⃣ Why Do Banks Charge Older Customers More?

It comes down to behaviour. Banks know:

• Most people don’t check their rate regularly.
• Many assume refinancing is difficult (it isn’t).
• Some believe loyalty equals rewards — but it usually doesn’t.

So lenders offer lower rates to attract new customers, while quietly increasing or leaving old rates untouched.

3️⃣ How Much Could the Loyalty Tax Be Costing You?

Even a small rate difference adds up quickly.

• 0.25% difference = noticeable monthly savings.
• 0.50% difference = hundreds a month for many homeowners.
• 1.00% difference = thousands per year in wasted interest.

If your rate starts with a “5” or “6” while new borrowers are getting something lower, you are almost certainly paying the loyalty tax.

4️⃣ How to Check If You’re Paying Too Much

A quick 5-minute check can reveal instantly whether you’re overpaying:

• Look at your current interest rate on your recent statement.
• Compare it with current offers from multiple lenders.
• If there’s a gap larger than 0.30% – 0.50%, you’re paying the tax.

Even if your lender reprices your rate, it’s rarely as sharp as a new-customer deal.

5️⃣ Why Calling Your Bank Doesn’t Always Work

You can ask your bank for a rate reduction — and sometimes they’ll agree. But:

• They rarely match the best offer in the market.
• They may reduce your rate now, then raise it later.
• Some lenders only improve rates when you threaten to leave.

A broker compares multiple lenders, not just the one you’re already with.

6️⃣ The Hidden Problem: Your Loan Term Resetting

Many banks quietly reset your loan back to a 30-year term when they make changes.

• This lowers your repayments…
• …but increases your total interest over the long run.

Always check whether staying with your bank extends your loan term without you noticing.

7️⃣ How Often Should You Review Your Home Loan?

To avoid the loyalty tax, aim to:

• Review every 12 months — just like an annual financial health check.
• Reprice or refinance if the gap becomes too large.
• Monitor your property value — more equity can unlock better rates.

Small, regular check-ins save you thousands.

8️⃣ When Refinancing Is the Better Option

Refinancing makes sense when:

• Your lender won’t offer a competitive rate.
• Your LVR is strong enough to avoid LMI.
• You want features your current loan doesn’t offer (like offset).
• You’re planning to keep your loan for at least 12–24 months.

A modest rate drop can outweigh switching costs very quickly.

🔟 The Easiest Way to Stop Paying the Loyalty Tax

A quick home loan review can show:

• What you’re paying now vs what you could be paying.
• How much you’d save over the next 12–24 months.
• Whether repricing or refinancing is the better strategy.