Are you paying too much for your home loan? The ‘loyalty tax’ explained


Throughout 2023 the world has experienced a cost of living crisis, and Aussie households are currently feeling the pinch.

One particular area compounding this problem for many families is an increase in their mortgage repayments due to inflation.

However, a large number of people could in fact be paying too much thanks to a concept called the home loan loyalty tax.

This week’s blog post looks at ‘the loyalty tax’, and how you can avoid it.

The loyalty tax defined

The loyalty tax is basically where you pay more if you are a long-term customer in comparison to a new customer, when it comes to interest rates.

If people do not get their home loan frequently examined, they may – without knowing – pay for years a much higher interest rate.

Why does this occur? As the cost of funding will vary over time, the interest rate set by the lender will be decided by that period.

When lower-cost funding becomes available, potential clients are offered such deals in order to draw in fresh customers.

However, this lower-cost rate does not automatically get given to those already with the bank or loan company.

What is the problem at the moment?

At the moment, Australia is going through a cost of living crisis. The Reserve Bank of Australia (RBA) have raised the national interest rate thirteen times since early 2022, jumping from a cash rate of 0.1% all the way up to 4.35%.

If you had a 2.8% to 2.9% interest rate in April 2022 that has now changed over to a variable rate, you may be paying 7.05% to 7.15% interest.

Presently, the variable interest rate for people buying properties is on average 5.84% to 5.9%. This was before the RBA’s rate rise of 0.25% last week.

How to avoid the loyalty tax

If you are able to decrease your loan repayment by one percent interest, you can potentially have $5000 in savings in the bank in twelve months.

Director of AA Finance Solutions, Leonard Nagawidjaja, was able to successfully drop a customer’s rate from 7% to 5.94% a short time ago.

This brought their monthly minimum repayment to $3,203 when it had previously been $3,534.

As a consequence, every month they managed to save around $331, based upon the loan being paid over twenty-five years.

Ways that you can achieve this are by getting your loan looked over once a year or talking to your lender or mortgage broker.

Sometimes you can even refinance your loan, however this may not work for those who must pay mortgage insurance.

Most mortgage brokers will also try to ensure you are not paying excess interest, and you can also try talking to your lender to renegotiate the rate of the loan.

Key points

Several important points from this week’s blog post are highlighted below.

  • Get your home loan checked regularly to make sure you’re getting the best deal.
  • If you are paying a ‘loyalty tax’, speak to your mortgage broker.
  • You don’t have to settle for paying more, refinancing may potentially be a solution.

At the end of the day, it’s important to speak to a financial expert before making any major decisions regarding your home loan.


In conclusion, the home loan ‘loyalty tax’ can have a major impact on your ability to save over time.

However, mortgage brokers like AA Finance Solutions will do their utmost to get you the best possible deal.

In addition to this, their support continues well past receiving your loan and throughout your homeownership journey.

If you would like further advice or help, feel free to reach out to the friendly team at AA Finance Solutions.

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