The Loyalty Tax: Why Staying With Your Bank Is Probably Costing You Thousands

Refinancing

Here’s an uncomfortable truth about how mortgage pricing works in Australia.

Your lender reserves its sharpest rates for people who don’t yet bank with it. The rate you were given when you signed up gradually drifts away from the rate the same lender is advertising today — not because you did anything wrong, but because you stopped shopping.

The industry calls it the loyalty tax. It’s not a conspiracy. It’s just a pricing model that works, because most people never check.

What it’s worth

The gap between a long-held variable rate and a competitive new-customer rate is commonly 0.30% to 0.80%.

On a $600,000 loan, 0.50% is roughly $190 a month — about $2,300 a year, and considerably more once you account for the compounding effect over the remaining term.

With the cash rate now at 4.35% after three hikes this year, that gap costs more in absolute dollars than it did when rates were low. Higher rates make the loyalty tax more expensive, not less.

The 15-minute test

Find your current interest rate. It’s on your last statement, or in your banking app. Most people genuinely don’t know it — go and look.

Look up what your own lender is advertising today for a new borrower with your loan size and LVR.

Note the difference.

If the gap is more than about 0.25%, you’re paying the loyalty tax.

Step one is not refinancing — it’s asking

Before you go anywhere, ask your existing lender to match their own new-customer pricing. Call their retention team. Say you’re considering moving.

It works more often than you’d expect, it costs you nothing, and it takes one phone call. A surprising number of people save a thousand dollars a year by doing nothing more than that.

If they say no, then you have a decision to make — and now you’re making it with evidence.

The catch in 2026: refinancing got harder

This is the part that catches people out, and it’s more important now than it has been for years.

When you refinance, the new lender assesses you from scratch — and under APRA’s rules, at your new rate plus three percentage points. With rates having risen through 2026, that assessment rate is higher than it was when you first borrowed.

The result: there are borrowers who could comfortably afford their existing repayments, who are refused a cheaper loan because they can’t clear the buffer at a new lender. It’s a genuinely perverse outcome and it’s real.

What this means practically: don’t assume you can refinance. Find out. And if your capacity is tight, get an assessment across multiple lenders — the variation between them is significant, and finding the one whose calculator suits your income shape can be the whole difference. This is precisely what a broker is for.

What refinancing should actually be for

Not just a lower rate. A refinance is a chance to fix the structure:

Get a proper offset account working against your loan

Consolidate expensive debt — car loans, personal loans, credit cards — into the mortgage. But understand the trade-off: you’ll pay less per month, and potentially far more in total interest by stretching a five-year debt over 25 years. Do it deliberately, not by accident

Access equity for a renovation or a deposit on an investment property

Restructure loan splits if your investment position is changing — see the 2027 tax changes

Shorten your term. If you can afford the current repayment on a lower rate, keep the repayment the same and cut years off the loan

What it costs

Discharge fee from the old lender, settlement and registration fees, possibly an application fee at the new one. Often somewhere in the range of a few hundred dollars, and some lenders offer cashback to cover it. If you’re on a fixed rate, break costs can be substantial — get a figure before you commit.

The rule of thumb: if you’ll recoup the cost within about a year, it’s usually worth doing.

Frequently asked questions

How often should I review my home loan? Every two years, minimum. Set a reminder.

Will refinancing hurt my credit score? Each application creates an enquiry on your file. One is fine. Six applications in a month is not — which is another reason to go through a broker who’ll place you with the right lender the first time.

Can I refinance if my property has fallen in value? It depends on your LVR. If you’re above 80%, LMI may re-enter the picture, which can wipe out the saving. Worth checking before you start.

When did you last check your rate? We’ll tell you what you’re paying, what you’d be offered today, and whether you can actually qualify to move. Free, and it takes 15 minutes.

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