If you have not looked closely at your home loan rate in the past year or two, there is a good chance you are paying more than you need to. Lenders consistently offer their sharpest rates to attract new customers, while existing borrowers are quietly left on older, less competitive products. This gap has earned a name in the industry: the mortgage loyalty tax, and it is costing Australian homeowners a genuinely significant amount of money without most of them realising it.
This is particularly relevant right now. The Reserve Bank of Australia raised the cash rate three times in the first half of 2026, taking it to 4.35 per cent, before holding steady at its June meeting. For many homeowners, that means repayments have already risen once or twice this year, on top of whatever loyalty gap already existed before the hikes began. The good news is that this is one of the most fixable problems in personal finance once you know it is there.
The mortgage loyalty tax refers to the gap between the interest rate a lender offers to attract new customers and the higher rate that same lender quietly leaves existing customers paying over time. Industry rate tracking puts this gap at roughly 0.50 to 0.80 percentage points on average, which on a $600,000 loan can mean somewhere in the order of $2,500 to $4,000 a year in unnecessary interest.
This gap exists because new customers are valuable to a lender’s growth, while existing customers, once settled in, are statistically less likely to go to the trouble of shopping around or switching. Lenders know this, and pricing reflects it. The good news is that the same loyalty that creates the gap is also the easiest thing to act on, because checking where you sit and doing something about it takes far less effort than most people assume.
There are three realistic responses once you discover you are paying the loyalty tax. You can ask your existing lender to reprice your loan, you can switch to a different product within the same lender, or you can refinance to a more competitive lender altogether. Which option makes the most sense depends on your specific situation, your loan size, and how big the gap actually is, and this is exactly the kind of comparison a broker can run for you quickly.
Why the Gap Exists in the First Place
Lenders compete hardest for new business. Advertised rates, cashback offers, and sharp introductory pricing are all designed to win new customers in a competitive market. Once you are settled into your loan, however, that same competitive pressure largely disappears. Lenders rely on the fact that most borrowers simply do not revisit their mortgage once it is set up, and that inertia is, quite literally, where the loyalty tax comes from.
This is not unique to one lender or one type of loan. It happens across the market, including with the major banks, and it tends to widen the longer you stay with the same lender without reviewing your rate. A loan that was competitively priced when you took it out three or four years ago can quietly drift well behind what the same lender is now offering new customers, even though nothing about your loan has actually changed.
What the 2026 Rate Environment Means for You
The Reserve Bank increased the cash rate three times in early 2026, in February, March and May, taking it to 4.35 per cent and effectively reversing the rate cuts borrowers had enjoyed throughout 2025. At its June meeting, the Reserve Bank held the cash rate steady, judging it appropriate to pause and assess the effect of the earlier increases on the economy.
Where rates go from here is genuinely uncertain, and it is worth understanding that uncertainty rather than assuming any one outcome. Westpac continues to forecast two further rate rises later in 2026, while the Commonwealth Bank, NAB and ANZ now expect the next move to be a cut, although none of the major banks are forecasting that to happen quickly. NAB, for example, has said it has greater confidence that the next move will be down than it does about when that might occur.
What this means practically is that waiting for rates to fall before reviewing your loan is not a particularly sound strategy right now. Even the banks expecting eventual cuts are not forecasting them until well into 2027, and a loyalty tax sitting on top of an already higher cash rate compounds the cost of waiting. Reviewing your rate now, regardless of which way the cash rate eventually moves, puts you in a stronger position either way.
How to Find Out Whether You Are Paying It
The simplest first step is to compare your current interest rate against the rates your own lender is currently advertising to new customers for a similar loan type and loan to value ratio. If there is a meaningful gap, often anything more than 0.3 to 0.4 percentage points, that is a strong signal you are paying more than you need to.
It is also worth checking your loan against the broader market, not just your own lender’s new customer rate, since the most competitive option for your situation may sit with a different lender entirely. This is where a broker adds genuine value, because comparing your position against dozens of lenders, rather than just the one you happen to be with, gives a far clearer picture of whether you are genuinely getting a fair deal.
Your Three Options Once You Know
If you find a meaningful gap, the first option is simply to ask your existing lender to reprice your loan to match what they are offering new customers. Many lenders will do this for existing customers who ask directly, particularly if you can point to a specific competing rate, though the outcome varies from lender to lender and is not guaranteed.
The second option is switching to a different product within the same lender, which can sometimes achieve a similar result without the cost or paperwork of a full refinance, though the savings on offer this way are often smaller than what the broader market might provide.
The third option is refinancing to a different lender altogether, which generally delivers the most competitive outcome but involves an application process and some switching costs, including discharge fees from your current lender and standard government charges. Whether this is worth it depends on your loan size and how long you intend to stay in the property, and running the numbers properly before committing is essential. A broker can compare all three paths for you honestly, rather than only presenting the option that suits one particular lender.
Most homeowners are not paying the loyalty tax because they have made a poor decision. They are paying it because reviewing a mortgage is the kind of task that is easy to put off, and lenders are well aware of that. The encouraging part is that fixing it does not require a major life decision, just a proper comparison of where you currently stand against what is actually available to you.
With rates having moved three times already this year and genuine uncertainty about what comes next, now is a sensible time to find out exactly where you stand. Get in touch with Adam at PierPoint Lending for a clear, no obligation review of your current loan and what your options actually look like.
Frequently Asked Questions
What exactly is the mortgage loyalty tax?
The mortgage loyalty tax is the gap between the competitive rates lenders offer to attract new customers and the higher rates that existing customers are often quietly left paying over time. Industry rate tracking typically puts this gap at around 0.50 to 0.80 percentage points, which can add thousands of dollars a year in unnecessary interest on an average sized loan.
How do I know if I am paying the loyalty tax?
Compare your current interest rate against what your own lender is currently advertising for new customers with a similar loan type and deposit size. A gap of more than around 0.3 to 0.4 percentage points is a reasonable signal that you are paying more than necessary. Comparing against the wider market, not just your own lender, gives an even clearer picture, since a more competitive option may sit with a different lender entirely.
Should I wait for interest rates to fall before reviewing my loan?
Probably not. Following three rate rises earlier in 2026, the Reserve Bank held the cash rate steady at 4.35 per cent in June. The major banks are currently split on what happens next, with Westpac forecasting further rises later in 2026 and the other major banks expecting the next move to eventually be a cut, though not before well into 2027. Reviewing your rate now addresses the loyalty tax regardless of which way the cash rate moves next, so there is little benefit in waiting.
Will my lender automatically give me a better rate if I ask?
Not automatically, but many lenders will reprice an existing loan for a customer who asks directly, particularly if you can point to a specific competing rate elsewhere in the market. The outcome varies considerably from lender to lender, and there is no guarantee of a result. This is one of the reasons it is worth comparing your options across the broader market before relying solely on a conversation with your existing lender.
Is it worth refinancing for a small rate difference?
It depends on your loan size, how long you intend to stay in the property, and the switching costs involved, including discharge fees and standard government charges. Even a seemingly small rate difference can add up to a meaningful amount over several years on a larger loan, but it is worth having the numbers run properly for your specific situation before deciding, since the right answer is different for every borrower.