Stung by the mortgage “loyalty tax”? Here’s what you can do.

Here we take a look at what loyalty tax is, why loyalty to your bank can cost you thousands, and how you can avoid paying it.  

What is a mortgage loyalty tax?

The term ‘loyalty tax’ is given to describe the price you pay for your being loyal to your bank or loan provider. It happens when new customers are offered a lower interest rate while long-term clients pay are still paying the much higher interest rate. 

If you’re paying a loyalty tax it means you’re paying more than necessary and could be entitled to savings.

How do I find out if I’m being charged a loyalty tax?

Your local Mortgage Choice broker can help you know if you’re getting a great deal on your home loan. 

Mortgage Choice brokers do all the legwork for you when it comes to comparing your loan against a wide panel of lenders and ensure you're getting the loan that’s suitable for your needs. 

Your local Mortgage Choice broker will fight to get you the best rate, so any potential savings can go back where they belong -  in your pocket.

So, if your current lender won’t budge on your rate, they can let you know in a matter of minutes if you could get a better deal elsewhere. 

Just how much is the loyalty tax costing homeowners?

The loyalty tax is costing Australian homeowners thousands of dollars each year. According to the Finder 2020 Loyalty Tax Report, it’s estimated that the average homeowner could save $6,826 per year if they switched from the average variable home loan rate of 4.55% to the lowest rate on the market. 

The ACCC recently released its Home Loan Price Inquiry interim report² which showed, on average, banks charge existing home loan customers 0.26% more than new customers. So, if you got your loan 3 or even 4 years ago, and it hasn’t been reviewed lately, there’s a good chance you may be charged loyalty tax. 

Expert advice

Getting a lower interest rate doesn’t always mean changing lenders but if you do decide to refinance elsewhere, it’s important to note that when it comes to home loans, interest rates are just one consideration. 

When it comes to understanding what's available in the market, the benefits offered by different loan features and what is suitable for your unique needs - expert advice could save you big time in the long run.

To find out if you're paying more than you should or whether there is a better lending product out there for you, give your local Mortgage Choice broker a call today.

Sources:

1 Finder - Loyalty Tax Report 2020
2 ACCC Home Loan Price Inquiry