Are you paying more than you need to on your home loan? If so, you may be a victim of the loyalty tax. This is when lenders offer their best interest rates to new customers, but charge existing customers higher rates. In 2022, the average interest rate for new home loans in Australia was 3.51%. However, the average interest rate for established home loans was 3.99%. This means that existing home loan customers were paying an average of 0.48% more than new customers. So what can you do about this?

Interest rates have risen since then, but there are still things you can do to avoid the loyalty tax.

Take Out a New Home Loan

Individuals who are new to the property market will not be affected by the loyalty tax as lenders compete with each other for new clients and offer competitive interest rates. However, it is still important to consult a mortgage broker as they have access to a bigger variety of mortgage options that can work in your favour.

Refinance Your Home Loan

Refinancing your home loan presents a promising opportunity to reduce your interest rate. However, prior to refinancing, it is crucial to diligently compare rates from various lenders, as significant discrepancies can exist. Simplify Finance can assist you in assessing the viability of refinancing by considering factors such as exit fees and potential impacts on your credit score.

Monitor the Cash Rate

The cash rate is the interest rate that the Reserve Bank of Australia (RBA) charges commercial banks for loans. Keeping a watchful eye on the RBA cash rate is prudent when contemplating a refinance. Changes in the RBA cash rate can serve as an indicator that home loan interest rates may be affected, potentially indicating that refinancing may be beneficial to you.

Reprice or Refinance?

Contrary to popular belief, securing a better deal on your existing home loan may not necessitate switching lenders. Engaging in negotiations with your current lender for a lower interest rate is referred to as repricing. This approach can yield favourable results and help you avoid the loyalty tax.

To Conclude

The loyalty tax is a real problem for many home loan customers. However, there are a few things you can do to avoid it. By refinancing or negotiating with your current lender, and keeping an eye on the RBA cash rate, you can effectively lower your interest rate and save a substantial amount on your home loan.

If you’re concerned about the loyalty tax, get in touch or book a call with us today. We can help you compare rates from different lenders and find the best deal for you.