What Is the Home Loan Loyalty Tax?
The loyalty tax is the extra interest you pay for staying put. Lenders compete hardest for new customers, so their sharpest rates go to people switching in. Existing customers are not automatically moved to those rates. Each time the lender sharpens its new-customer pricing and leaves yours alone, the gap widens a little, and after a few years it can be substantial.
Lenders describe this as front book (new loans) and back book (existing loans) pricing. Nothing about it is hidden or unlawful. It simply relies on customers not asking.
How Much Does the Loyalty Tax Cost?
The clearest evidence comes from the ACCC's Home Loan Price Inquiry. Its final report found that, as at September 2020, borrowers were paying the following above the average rate on new loans:
- Loans three to five years old: about 0.58% more
- Loans five to ten years old: about 0.71% more
- Loans more than ten years old: about 1.04% more
Those figures are from 2020 and the gap moves with market conditions, but the pattern has not gone away: the older the loan, the more it tends to drift. To put a 0.50% gap in dollars, on a $600,000 loan with 25 years remaining it is roughly $181 a month, or more than $2,100 a year.
Clients sometimes feel insulted when they see the gap, especially after ten years with the same bank and never a missed repayment. It is not a judgement of you. Your loan was priced once and then left alone. The lender is not going to volunteer a discount, but in my experience most will give one the moment they are asked properly, and the ones that will not make the refinance decision easy.
How Do You Know If You Are Paying a Loyalty Tax?
- Find your current interest rate on your latest statement or banking app.
- Look up what your own lender is advertising to new customers for the same loan type (owner-occupier or investment, principal and interest or interest-only) at your loan-to-value ratio.
- Compare. If the new-customer rate is lower than yours, the difference is your loyalty tax.
If you have not reviewed the loan in two years or more, or you have come off a fixed rate onto the revert rate, assume there is a gap until proven otherwise. A free rate review will show the number in about 20 minutes.
How Do You Stop Paying It?
There are two tools, used in order:
Reprice. Ask your current lender to match its new-customer rate. No application, no credit enquiry, no cost. See repricing vs refinancing.
Refinance. If the reprice still leaves you above the market, move the loan. Typical switching costs are $500 to $1,500 (itemised in refinance costs and fees in NSW), and the break-even calculator shows how quickly the saving recovers them.
Why Do Lenders Charge Existing Customers More?
Because switching takes effort and most borrowers do not do it. The ACCC noted that opaque pricing and the time involved in comparing discourage customers from switching, and recommended that lenders prompt customers with loans more than three years old to review their rate. Until a prompt arrives, the practical answer is to check once a year yourself, or have a broker do it for you.
Does a Loyalty Tax Apply to Fixed Rate Loans?
Not during the fixed term, because the rate cannot move. It shows up at the end. When a fixed term expires, the loan rolls onto a revert rate that is commonly above the lender's new-customer variable rate. That moment is covered in what to do when your fixed rate is ending.
General information only. It does not take your objectives, financial situation or needs into account. All lending is subject to lender assessment and approval. Fees and figures are typical ranges at 14 November 2026 and can change. Lend & Loan, Australian Credit Licence 511092.
