Are You Paying the "Loyalty Tax" on Your Home Loan?
With interest rates and lending policies continuing to evolve throughout 2026, many Australians are taking a closer look at their home loans. While most homeowners keep an eye on Reserve Bank announcements, one of the biggest opportunities to save money may have nothing to do with the next rate decision.
It's called the "loyalty tax".
Many borrowers assume that because they've been with their bank for years, they're receiving a competitive interest rate. Unfortunately, that's often not the case. Lenders regularly offer their sharpest rates and incentives to attract new customers, while existing borrowers can find themselves paying significantly more than someone taking out the same loan today. Industry analysis suggests the gap between existing and new customer rates can commonly range between 0.30% and 0.50%.
While that may not sound like much, the impact can be substantial. On a $700,000 mortgage, a difference of just 0.50% could mean paying thousands of dollars more in interest each year.
The good news is that borrowers have more options than ever before. Refinancing activity remains strong across Australia as homeowners review their lending arrangements and take advantage of increased competition between lenders. Many borrowers are discovering they can reduce their interest rate, access better loan features, consolidate debt, or improve their overall cash flow by simply reviewing their current loan structure.
Importantly, refinancing isn't just about finding the lowest interest rate. A loan that was suitable five years ago may no longer align with your current financial goals. Changes in income, family circumstances, investment strategies, or future plans can all impact whether your current lending structure remains appropriate.
For clients working with a financial adviser, your home loan is often one of the largest financial commitments you'll ever have. Even small improvements in your lending arrangements can create significant long-term savings, increase surplus cash flow, and potentially help accelerate progress towards other financial goals.
If you haven't reviewed your home loan in the last 12 to 24 months, now may be a good time to do so. The lending market continues to change, and what was competitive yesterday may not be competitive today.
A simple review could reveal opportunities to reduce repayments, pay off your loan sooner, or ensure your lending structure is supporting your broader financial strategy.
After all, loyalty is valuable, but it shouldn't come at the cost of paying more than you need to.
If any of this has sparked a thought, even a vague one, that's enough to start with. Reach out for an obligation free chat and we'll take it from there.
Loren Marsh - Mortgage Specialist
M: 0437 460 035
E: loren.marsh@ledgersmith.com.au
