Loyalty tax: Who is paying for it?

Loyalty tax

Loyalty tax: Who is paying for it?

By Bianca Dabu | 16 October 2020

“Loyalty tax” stands as one of the hidden charges on mortgage holders, who could be blindly loyal to their bank and paying for it without even knowing it.

According to CGIO Finance owner Cara Giovinazzo, this misguided loyalty could be costing borrowers tens of thousands of dollars by needlessly accepting higher interest rates on their home loans.

Long-term home loan customers could be hit with a loyalty tax by their lenders, who could then be offering much lower rates to new customers for the exact same home loan product, the Queensland-based finance broker explained.

“A lot of lenders are offering much lower rates for new customers than they are for their existing mortgage holders, despite consumers having years of loyalty with their bank. An Australian Competition and Consumer Commission (ACCC) mortgage price inquiry in 2018 estimated that an existing borrower with an average-sized mortgage could initially save up to $850 a year in interest if they were to pay the same interest rate as a new borrower,” Ms Giovinazzo said.

“Despite record low official interest rates at the moment, nothing has changed. Some mortgage holders continue to be paying a much higher rate than what new customers are paying. After years of loyalty, this is how their lenders are treating them.


“We often see lenders offering new customers interest rates up to 1 per cent lower than they are offering some of their long-term borrowers, which could end up costing tens of thousands of dollars over the life of their home loan.”

For this reason, she strongly advised mortgage holders to be vigilant about their home loans, particularly with the economic uncertainty due to the ongoing COVID-19 pandemic.

The finance broker encouraged borrowers to engage with trusted mortgage brokers in order to get a full view of the charges that will come with their home loan, as well as the other options available for them in the market.

“Don’t be complacent and just ‘set and forget’ as this can potentially cost you a lot of money. You need to be prepared to shop around to make sure you are getting the best terms possible,” she concluded.

“Good mortgage brokers will call their client’s banks on their behalf annually, to ensure they are still on a competitive rate. They have more bargaining power with lenders typically, than if a consumer went directly to the lender themselves. Consult a reputable and experienced mortgage broker to find the lowest interest rate that suits you and to ensure you will be continually looked after.”



Mortgages are loans that are used to buy homes and other real estate where the property itself serves as collateral for the loan.


Mortgages are loans that are used to buy homes and other real estates where the property itself serves as collateral for the loan.

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Loyalty tax: Who is paying for it?
Loyalty tax
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