Is Your Bank Quietly Charging You More Than It Should? The Loyalty Tax Explained

With the RBA lifting the cash rate three times already in 2026 — now sitting at 4.35% — the cost of your mortgage has almost certainly gone up. But there's a cost many Australians are paying that has nothing to do with the RBA, and everything to do with staying loyal to the wrong lender.

It's called the mortgage loyalty tax, and in the current environment, it matters more than ever.

What Is the Loyalty Tax?

The loyalty tax isn't something the ATO levies. It's the name given to a pricing gap that the Reserve Bank, the ACCC, and countless industry reviews have all confirmed: banks routinely offer lower rates to new customers than they charge existing ones.

The ACCC found that borrowers with loans between three and five years old were paying, on average, 58 basis points more than new customers. The RBA's own research showed the gap reaches around 60 basis points for loans more than eight years old.

"On a $600,000 loan, 0.50% extra in interest costs you roughly $3,000 a year — money leaving your account silently, every single year, simply because you haven't asked."

The big four banks have been estimated to collect over $4 billion annually from customers paying these higher rates. That's not a bug in the system. It's a feature — and it relies entirely on your inertia.

Why Do Banks Do This?

It comes down to simple economics. Banks compete aggressively for new business with sharp introductory rates and cashback offers. Once you're a customer, the incentive flips: unless you push back, they have little reason to voluntarily lower your rate.

Your rate doesn't usually jump overnight — it drifts. A discount that was competitive two years ago quietly becomes uncompetitive as the market moves and new offers emerge. Before long, the gap between what you're paying and what a new customer would be offered has quietly widened.

Most people don't notice because they don't compare. That's exactly what lenders are counting on.

How Do You Know If You're Paying It?

A few quick checks:

•      Look up what your current lender is advertising to new customers for a comparable loan. If their advertised rate is noticeably lower than yours, you're likely paying a loyalty premium.

•      Check how long you've been with your current lender without a rate review. If it's been more than 12 to 18 months, there's a reasonable chance the market has moved past you.

•      Compare your rate against the broader market. Competitive variable rates for owner-occupiers are currently available from around 5.95% to 6.25% p.a. for well-qualified borrowers. If you're sitting meaningfully above that and haven't reviewed recently, it's worth a conversation.

The quickest way to know for sure is to let me do the comparison for you — it takes minutes and costs nothing.

What Can You Do About It?

You have two options, and I'd recommend trying them in order:

1.    Call your lender and ask for a rate review. This is often quicker and simpler than people expect. Tell them you've been reviewing the market and ask what they can do. If you have a good repayment history, a loan-to-value ratio below 80%, and a strong credit position, you have real leverage. Lenders would rather give you a small discount than lose you entirely. Many clients are surprised to find their bank comes back with a meaningful reduction just from asking.

2.    If they won't move — or won't move enough — refinance. With 75% of Australian home loans now written through mortgage brokers, and refinancing making up a significant share of that activity, the process is far more straightforward than most people assume. There's no real estate agent, no contract of sale, and in many cases the new lender handles the bulk of the paperwork. The process typically takes two to six weeks.

One important note on refinancing: comparing rates is not the same as comparing total costs. Watch for discharge fees from your current lender, application and valuation fees with the new one, and the impact on your loan term. Some lenders default to resetting you to a full 30-year term, which can erode the benefit of a lower rate. These are things I work through with every client before recommending a switch.

Fixed vs Variable: Does It Change the Calculation?

If you're on a variable rate, reviewing your loan is relatively straightforward — there are no break costs and you can move at any time.

If you're on a fixed rate, the picture is more complex. Fixed rates currently sit broadly in the low-6% to high-6% range. Breaking a fixed loan early can trigger significant break costs, so the first step is getting an accurate estimate of those before deciding whether switching makes financial sense. In many cases, it's better to wait until the fixed period expires, then act.

Split loans — part fixed, part variable — are also worth considering for borrowers who want some protection against further rate rises while retaining the flexibility to make extra repayments on the variable portion.

The Bigger Picture: Rates May Rise Further

With the RBA having hiked three times in 2026 and markets pricing in the possibility of at least one more increase, this isn't the time to set and forget. Every time rates move, the gap between what you're paying and what you could be paying tends to shift too.

The FBAA's managing director has put it plainly: even a 0.25% increase adds around $115 per month to repayments on a $700,000 loan. Multiply that by the loyalty gap on top, and the combined impact on household budgets is real.

"Unlike banks, who act in the best interests of their shareholders, mortgage brokers are legally obligated to act in the best interests of their clients."

That legal obligation matters. When I do a comparison for you, I'm not trying to move you for the sake of it — I'm only going to recommend a switch if the numbers genuinely work in your favour, with all costs factored in.

What I'd Suggest Doing Right Now

If you haven't had a rate review in the last 12 months, or if you've been with the same lender for several years without checking the market, now is a practical time to act. The combination of rate hikes and the budget changes affecting borrowing capacity means your mortgage deserves closer attention than it might have a year ago.

Here's what I suggest:

•      Dig out your current loan documents and find your interest rate

•      Get in touch with me — I'll compare it against the current market in minutes

•      We'll work out whether you're better placed to negotiate with your existing lender, refinance, or simply stay put for now

There's no obligation and no cost for the review. The worst outcome is you confirm you're already on a good deal. The best outcome is you save thousands a year.

Phil Aldridge  |  Mortgage Broker  |  This article is general information only and does not constitute financial advice. Credit eligibility criteria, terms, conditions, fees and charges apply. Please seek advice tailored to your individual circumstances.