The Loyalty Tax: Why Staying With Your Bank Is Costing You Money
By Build Invest Grow
There's a quiet penalty in the Australian mortgage market that almost nobody talks about. It doesn't show up as a fee on your statement. Your bank won't call to warn you about it. And the longer you ignore it, the more it costs you.
It's called the loyalty tax — and if you've had your home loan for more than two years without reviewing it, it's worth checking whether you're paying it right now.
What Is the Loyalty Tax?
Here's how it works.
When a bank wants to attract new customers, it puts its best rates on the table. Competitive offers, cashback deals, low introductory rates. The marketing is polished, the numbers look great, and new borrowers sign up.
Then, over time, those rates quietly drift upward. New customers keep getting the sharp deals. Existing customers — the ones who have been paying faithfully for years — get whatever the bank feels like charging them.
The result: your bank may be offering a better rate to new customers than the rate you're currently paying.
That gap between what loyal customers pay and what new customers are offered is the loyalty tax. And in Australia, it's real, it's widespread, and for some homeowners it can add up to thousands of dollars a year — depending on their loan size and rate.
Why Do Banks Do This?
Because they can.
Lenders know that switching feels complicated — and most borrowers don't act on it. There's paperwork, valuations, legal fees, and the general sense that it's probably not worth the hassle. Most people put it in the "I should look into that someday" pile and never act.
In lending, loyalty doesn't automatically translate into a better rate. The longer you stay without reviewing your loan, the more confident they are that inertia will keep you there — regardless of the rate they're charging.
It's not personal. It's a business model built on your reluctance to move.
How Much Could It Be Costing You?
The exact amount depends on your loan balance, your current rate, and how long it's been since you last reviewed.
To illustrate the scale: on a $600,000 loan, a difference of just 0.5% in interest rate equates to roughly $3,000 per year in additional repayments. Over five years, that's $15,000 — paid to a bank that gave you no additional service, no loyalty reward, and no reason to stay.
Many borrowers we speak to in Sydney haven't reviewed their loan in three, five, or even seven years. What they find when they review is often worth knowing.
Note: These figures are illustrative. Your actual savings will depend on your loan balance, current rate, and available alternatives. A broker can calculate your specific position.
The Three Signs You're Paying the Loyalty Tax
1. You got your loan more than 2 years ago and haven't reviewed it The lending market moves constantly. A loan that was competitive two years ago may now be well above the best available rates. Time alone is a warning sign.
2. Your rate starts with a number higher than what you see advertised When you see advertised rates that are noticeably lower than what you're paying, that gap is worth investigating. It may not mean you can automatically access those rates — but it's a prompt to ask the question.
3. Your bank has never proactively called to offer you a better rate Banks don't do this. They have no incentive to voluntarily reduce your rate. If you've never asked, you've never been offered anything better.
What Can You Do About It?
You have two options, and both are worth knowing.
Option 1: Call Your Bank and Negotiate
This works more often than people expect. Banks would rather reduce your rate slightly than lose you entirely. Call your bank's retention team (not the general helpline — ask specifically for retention), mention that you've been reviewing your options, and ask what they can do.
Some borrowers get a small rate reduction this way. There's no cost to the call, it takes 20 minutes, and it's worth doing.
The limitation: your bank can only offer you what they have. Even if they move, it may still not be the best rate available in the market.
Option 2: Refinance Through a Mortgage Broker
This is where the bigger savings tend to live. A broker has access to dozens of lenders — not just your current bank — and can compare your existing rate against the full market in one conversation.
Refinancing used to mean mountains of paperwork and weeks of waiting. In most cases today, the process is far simpler than people expect. A broker handles the comparison, the application, and the lender liaison. Many borrowers complete a refinance without it ever feeling like a major event.
The cost of refinancing (discharge fees, application fees, potentially a short break cost if you're on fixed) needs to be weighed against the ongoing savings. A good broker will do that calculation for you upfront, so you know exactly whether the numbers make sense before committing to anything.
"But I've Been With My Bank for 20 Years"
This is the most common reason people don't act — and the banks love it.
Loyalty is a genuine value in many relationships. In lending, loyalty doesn't automatically translate into a better rate. Your 20-year history does not earn you a better rate. It does not give you priority service. It does not translate into any financial benefit unless you specifically negotiate for it.
The relationship you feel toward your bank is not reciprocated in the way your statement reflects.
The most effective thing you can do with that 20-year relationship is use it as leverage: call the retention team, tell them you're reviewing your options after two decades, and see what they offer. Then compare that offer against the market. Whatever you choose after that is an informed decision — not an expensive habit.
Frequently Asked Questions
How do I know if I'm actually paying more than I should be? The easiest way is to speak to a mortgage broker. A broker can pull your current rate, compare it against what's available for your loan profile, and tell you within a single conversation whether you're in a good position or not. There's no obligation to refinance — there's no charge for the initial review.
Will refinancing hurt my credit score? A credit enquiry from a refinance application does appear on your credit file. However, a single well-managed refinance to a suitable lender has minimal long-term impact on your credit score. A broker can advise on the best approach for your situation.
Are there costs involved in switching lenders? Yes — typically a discharge fee from your current lender ($150–$400), and potentially an application fee with the new lender (though many waive this). Some lenders offer cashback incentives that offset switching costs. A broker will outline all costs before you make any decision.
What if I'm on a fixed rate? Breaking a fixed rate loan can involve a break cost, which varies significantly depending on how much rates have moved since you fixed. In some cases it still makes financial sense to break and refinance; in others, it makes more sense to wait until the fixed period ends. A broker can calculate your exact break cost.
The Bottom Line
The loyalty tax is not a conspiracy. It's simply the result of a market where banks profit from inaction, and most borrowers never act.
Reviewing your home loan once a year takes less than an hour. For most Sydney homeowners with a mortgage of $500,000 or more, that hour is one of the more practical financial reviews a Sydney homeowner can do.
Book a no-obligation 15-minute call with Daniel Kotevski to find out whether the loyalty tax applies to your situation — and whether refinancing makes sense for your circumstances.
Daniel Kotevski is a Sydney-based mortgage broker serving homeowners across Sydney, Beverly Hills, and the surrounding suburbs. Credit Representative 517192.
This article is general in nature and does not constitute financial advice. Please speak to a qualified mortgage broker for advice specific to your situation. Loan products, rates, and fees are subject to lender criteria and may change. Always verify current terms with a licensed professional. Refinancing may not be suitable for everyone — consider whether the costs of switching are outweighed by the benefits in your circumstances.