Are you paying a loyalty tax to your bank?


Banks’ loyal mortgage customers are being slugged about $1000 a year more in interest payments compared to new borrowers, according to the RBA.

Last week RBA Governor Philip Lowe urged loyal mortgage customers to “shop around” to get a better home loan rate. Reserve Bank Of Australia

He pointed to new RBA and APRA data that shows owner occupier home loan customers who have been with their bank for four or more years are paying an average variable rate of 3.64 per cent, while new customers are paying an average of 3.23 per cent.

The difference in loan rates had been dubbed a “loyalty tax” by some politicians, including Treasurer Josh Frydenberg, who have likened the banking industry to the energy sector.

Analysis from shows that 0.41 per cent rate difference on a $400,000 home loan adds up to $1,634 extra in interest in the first year.

Average mortgage rates

Loan Type Average existing customer rate Average new customer rate Difference
Owner-occupier – all loans 3.64% 3.23% 0.41%
Owner occ, principal & interest 3.57% 3.18% 0.39%
Owner occ, interest only 4.25% 3.76% 0.49%
Investor – all loans 4.02% 3.62% 0.40%
Investor, principal & interest 3.88% 3.51% 0.37%
Investor, interest only 4.27% 3.79% 0.48%

 Source: RBA housing lending rates

Difference in interest between new owner occupier customer rates and existing customer rates 

Loan size Extra interest paid in first year
$250,000 $1,021
$400,000 $1,634
$750,000 $3,064
$1,000,000 $4,085


Note: Rates are based on a new customer rate of 3.23% and an existing customer rate of 3.64% as provided by the RBA. Calculations are based on someone paying principal and interest over 30 years.

The RBA said some of the 40 basis point difference between older and newer mortgages could be explained by a shift in the mix of different types of variable-rate mortgages.

“In particular, the share of interest-only and investor loans in new lending has declined noticeably in recent years and these tend to have higher interest rates than other loans.

Nevertheless, even within given types of mortgages, older mortgages still tend to have higher interest rates than new mortgages.” research director Sally Tindall has welcomed the Reserve Bank’s decision to arm mortgage holders with this new information, which will be released every month.

“It’s great to see the RBA shining the spotlight on the mortgage loyalty tax,” she said.coins tax

“Although loyalty is an admirable trait, when it comes to your home loan, it often doesn’t pay off.

“If you’re on variable rate and haven’t negotiated your home loan recently, there’s every chance you’re paying more than a new customer.

“Don’t put up with overpaying, call your bank and negotiate a better rate. If they refuse to budge, you can always take your business elsewhere, especially if you are on a variable rate.

“Variable rates start as low as 2.69 per cent and there are more than 30 lenders offering variable home loan rates below three per cent,” she said.


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Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
Visit Metropole Melbourne

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