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HomeMoneyAre you too loyal for your own good?

Are you too loyal for your own good?


By Louisa Sanghera, Director, Zippy Financial

The average Australian homeowner is paying more than $37,000 in extra interest over the life of their home loan due to the loyalty tax, and it has got three-quarters of borrowers feeling ripped off and angry. 

So, what is the loyalty tax? 

It is the sneaky lender trick where borrowers with older mortgages are typically charged a higher interest rate than borrowers with new loans, and it was confirmed in a study by the Reserve Bank of Australia (RBA) in 2020. The banks don’t think you are paying attention, so they only offer their lowest rates going to new customers to win them over.  

The RBA June 2021 figures show the average difference in home loan interest rates between new and existing owner-occupier borrowers was 0.46 per cent. On an average loan size of about $400,00, that 0.46 per cent difference on a 30-year-loan means a borrower would pay an additional $37,462 in interest over the life of the loan. That is $1,249 per year, per household. 

Borrowers are feeling ripped off and angry 

It should be no surprise that 91 per cent of borrowers want new and existing customers to receive the same rate, according to a survey of 1,000 homeowners undertaken by CoreData and commissioned by Athena. The vast majority of those surveyed say they also feel “ripped off” (82 per cent), “angry” (74 per cent) and “outraged” (72 per cent) at this pricing practice.  

You don’t need to feel trapped 

The ACCC published a report in December 2020 where there were several recommendations that would prevent this unfair practice, but nothing much has come out of it since.

More than half (56 per cent) of those surveyed say they feel trapped in their current deal, while one-in-three people (36 per cent) asked their lender for a drop in their interest rate but were rejected.

Competition amongst lenders is quite fierce right now – so… the power is in your hands!  

Rates are at an all-time low, so it is a crucial time when Australians need the money in their pockets, not the banks. Well-informed borrowers can negotiate a larger discount on their existing lender, without the need to refinance their loan.  

Louisa Sanghera


Zippy Financial

Main image: DepositPhotos