You’d think loyalty pays off, right? Whether it’s frequent flyer points or your favourite café giving you a free coffee, we’re used to the idea that sticking around gets you rewarded. But when it comes to your mortgage, being loyal could actually be costing you more. That’s where The Mortgage Loyalty Tax comes in.
So, what exactly is The Mortgage Loyalty Tax?
It’s the sneaky difference between the interest rates that existing customers pay compared to the fresh deals offered to new borrowers. According to the latest data from the Reserve Bank of Australia, if you’ve already got a home loan, you’re likely paying 0.08% more in interest than a new owner-occupier customer would. Property investors are feeling the pinch even more, with existing borrowers paying 0.13% more. Doesn’t sound like much? Think again. Even a 0.08% difference can add up to tens of thousands of dollars over the life of your loan—money that could’ve gone towards paying your loan off faster, a holiday, renovations, or just about anything else!
How does this happen?
Lenders love to attract new customers with special offers, low rates, and tempting packages. But once you’re locked in and have been making your repayments for a while, they aren’t in a rush to drop your rate or give you a better deal unless you ask. That’s how this loyalty tax creeps in—new customers get the lower rates while existing ones end up paying more unless they keep an eye on the market and their options.
And here’s the kicker: in recent years, The Mortgage Loyalty Tax has been as high as 0.50% – it tends to move in waves. The cost of not shopping around could run into the hundreds of thousands of dollars over a 30-year loan!
So, how do you avoid it?
The good news is, you don’t have to be stuck paying more than you should. There are a few steps you can take to make sure you’re not getting the raw end of the deal:
1. Check your rate regularly:
Just because your rate was competitive when you first signed up doesn’t mean it still is. Interest rates move around, and what was a great deal five years ago could be well above market now.
2. Talk to a broker:
If your rate looks a little outdated, it’s worth picking up the phone and having a chat with a mortgage broker. You’d be surprised how easy it can be to find a better deal, even with your current bank.
3. Consider refinancing:
If your current lender isn’t budging, it’s time to explore other options. Refinancing to a new lender with a more competitive rate can save you big bucks, both in the short and long term.
We’re here to help
At AP Group, we can take a look at your current rate and tell you if it’s fair, or if it needs some work. If your rate isn’t cutting it, we’ll help you negotiate a better deal with your current lender—or if necessary, assist you with refinancing to someone who’ll offer you a better rate. The Mortgage Loyalty Tax is one tax you definitely want to avoid. Let us help you make sure your money is working hard for you—not your lender!
Source: Reserve Bank of Australia – Statistics Tables
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.