Australian homeowners who have not reviewed their mortgage rates in years may be paying thousands of dollars more than necessary, according to new financial analysis. The so-called “loyalty tax” refers to the higher rates charged to long-standing customers compared with new borrowers.
Financial adviser Nicola Hynes warned that loyalty to a lender often comes at a cost. Speaking to Yahoo Finance, she explained that many borrowers assume their bank will reward long-term customers with better terms, but in reality the opposite is true. This gap in rates can lead to significant extra repayments over the life of a loan.
Long-Term Customers Face Higher Interest Rates
Analysis by comparison site Canstar found that owner-occupiers who have not refinanced or renegotiated since the Reserve Bank of Australia (RBA) began raising rates in May 2022 are typically on a variable rate of 6.61 per cent. In contrast, dozens of lenders are currently offering rates below 5.50 per cent.
For a borrower with a $600,000 mortgage and 25 years remaining, refinancing from 6.61 per cent to 5.50 per cent could reduce minimum monthly repayments by $408. Over two years, that difference adds up to more than $12,000 in savings, even after allowing for $1,150 in switching costs.
Hynes said many borrowers are unaware they are paying more than necessary because banks rarely contact customers to offer lower rates. “The bank’s not going to call them up and be like, ‘Hey, we’re going to give you a cheaper rate,’ because they are a business like any other business and they’re set up to make money,” she said.
She advised homeowners to review their mortgage terms at least annually, either directly with their bank or via a mortgage broker who can assess alternative offers in the market.
RBA Decision Expected to Lower Repayments
The RBA is due to meet tomorrow and is widely expected to cut the cash rate to 3.60 per cent. According to Canstar’s data insights director Sally Tindall, if this cut is passed on in full, a borrower with a $600,000 loan could see their repayments drop by around $90 per month.
Tindall said banks should “step up to the plate” and pass on the full benefit of the reduction, noting that this would be the third cut following 13 consecutive rate hikes. She also urged borrowers to ensure they are paying no more than 5.50 per cent after any rate adjustment.
Financial experts emphasise that while the upcoming rate cut could provide some relief, the larger savings often come from actively securing a competitive interest rate rather than waiting for banks to act. Regularly reviewing and negotiating loan terms remains one of the most effective ways for Australians to reduce their mortgage burden.
