Are you paying home loan loyalty tax?


When home loan rates are rising, staying loyal to your lender could be costing you dearly.

You’re probably happy to stay settled in your home for many years to come, and your investment property should be seen as a long-term asset in most cases. But sticking to the same mortgage year after year? That’s a very different story – one that could profit your bank, while leaving you out of pocket.

The cost of home loan loyalty

It’s no secret that many lenders reserve their best home loan rates for new customers. 

As a guide, data from the Reserve Bank of Australia (RBA) shows that in August 2022, the average variable rate on established home loans was 4.44%. However, the average rate for new loans was just 3.96%.

It means loyal customers are paying a rate penalty averaging 0.48% just for staying with the same lender.

This rate difference between old and new loans has been dubbed the ‘home loan loyalty tax’.

It’s something the Reserve Bank of Australia (RBA) called out in early 2020, noting that “older mortgages tend to have higher interest rates than new mortgages”.  And it’s seeing the big banks pocket billions in extra profits each year (AFR).

More to the point, as interest rates climb higher – and the RBA has admitted more rate hikes are on the way – none of us can afford to be complacent about our mortgage interest rate.

Impressive savings by skipping the loyalty tax

Fortunately, plenty of savvy home owners and property investors are ditching the home loan loyalty tax and switching to a new loan and lender offering a more competitive rate.

A recent industry report by Pexa found that 1.04 million Australians refinanced their mortgage in the past 12 months. A further 2.28 million are planning to refinance in the near future.

The Pexa analysis shows just how impressive the savings of refinancing can be.

It turns out, refinancers who switched lenders are saving, on average, $1,908 each year. That could be money in your pocket – instead of the bank’s.

It’s not just home owners who are benefiting from the savings of refinancing.

Property investors account for two out of five refinancers (Pexa). This makes sense because higher interest rates will eat away at the returns your property generates – and squeeze your cash flow.

End of a fixed rate nearing?

If you currently have a fixed-rate mortgage that is nearing the end of the fixed term, it is especially important to take a look at the options available through a variety of lenders.

If you do nothing, you will likely be switched to your lender’s standard variable rate – and it’s almost certain this is not the lowest rate available.

Refinancing made easy

In our busy lives, it can be easy to put refinancing on the backburner – or assume it’s just all too hard. But refinancing can be surprisingly quick and easy when you have the benefit of professional support.

Pexa reports that among the refinancers it surveyed, the average timespan to refinance was just 3.4 weeks.

Make a habit of checking

Sure, there can be valid reasons to stay with the same lending solution – and it always makes good financial sense to weigh up the costs of refinancing against the benefits.

But equally, it is worth making a habit of checking how your loan shapes up against others in the market.

Switching to a new loan or lender doesn’t just have the potential to deliver rate savings. We are also seeing a wide variety of lenders offer cashback deals, sometimes worth $4,000-plus, exclusive to refinancers. 

The upshot is that loyalty is a great quality. But not always in a borrower.

Reviewing your property investment loan has the potential to deliver savings on interest, leading to improved cash flow and an uptick in net yields – all compelling reasons to make a date to take a closer look at your loan.


Book your free review

At Momentum Wealth, loan reviews are an important part of our service offering as we want to ensure you continue to get the most out of your property finance.

If you would like to organise a free review of your existing loan solution to assess whether you could save money through refinancing, fill out the form below and a member of our team will be in touch.


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