How to Avoid the Home Loan "Loyalty Tax"

How to Avoid the Home Loan “Loyalty Tax”

If you have been with the same lender since you first took out your home loan you could be losing money. With interest rates historically low right now, you could be paying more than 4 percent than you need to be! If you have not reviewed your mortgage recently, please read on to find out what loyalty tax is and how you can avoid it.

What is Loyalty Tax?

Do you remember when you were first shopping for your home loan and you, or your mortgage broker, researched all the best deals available? When you got the best deal back then, you were likely given a price deal to win your business. Once you are on board, new customers continue to get better deals, but you may be left behind with your interest rates or fees creeping up over the life of your loan. This is commonly known as a “Loyalty Tax”.

Loyal, long-serving customers effectively help their lender fund the special deals offered to new clients, and we don’t think that’s fair!

Why is Loyalty Tax a problem?

Often, after homebuyers settle on their home, life gets busier either with starting a family or career progression and they don’t pay too much attention to the home loan market anymore. Certainly, they might not realise in just four years, they could be paying as much as 40 basis points more on a variable interest rate than customers on newer loans.

No matter how long you have been with the same lender you could be a victim of this Loyalty Tax but there are things you can do to avoid it, and prevent it from happening again.

Do you want to pay less on your home loan?

Do you know what your interest rate is right now? Many homeowners don’t know, and that can be costing them more than they need to be paying for their mortgage. Unfortunately for some homeowners, they feel refinancing is too much of a hassle, even if going through the process would mean a better deal. Banks rely on this “set and forget” mindset because they don’t need to do much to keep you as a loyal customer. 

Now, if you are motivated enough, there is nothing stopping you negotiating your variable interest rate with your current lender. With one phone call to your lender, you can ask for a better rate. It pays to be courteous to the customer service officer on the other end, explain how long you’ve been with them and that you would like a review on your home loan interest rate.

Sometimes, your lender will immediately offer a better interest rate. You can usually do one better and ask if they’ll match any new home loan price deal they currently have for new customers. If your lender says no to either of these requests, it might be time to consider how much Loyalty Tax is really worth it for you. Why stay loyal to a lender who is not working in your best interest?

How Refinancing can save you money 

Refinancing for a better home loan deal can be the best option to ensure you have the lowest interest rate available paired with the right loan features for your personal circumstances. An experienced mortgage broker will take all the hassle out of refinancing your mortgage to avoid Loyalty Tax with your current lender.

Because mortgage brokers are legally required to work in your best interests, you can trust them as specialists to research and present the best option to save you money. 

When refinancing might not be for you

There are a few situations where staying with your current lender might be your best option. As mortgage specialists, we can assess your current financial situation, your existing loan and advise if this is the case for you.

Some reasons refinancing might not be for you could be:

  • You have a fixed interest rate home loan with high break costs
  • You have a fixed package loan and you are using every product offered by the lender which saves you more money overall

An experienced mortgage broker will always take everything into account for you to determine your best next steps.

How to avoid paying Loyalty Tax ever again

By reading this article, you are already on your way to never paying Loyalty Tax again. Being aware of it and knowing you can get a better deal is the first step to holding your lender accountable. By letting your mortgage broker know you want a better deal, you can stay on the front foot. 

Knowing your goals to have the best deal for you home loan means we can keep you updated with offers and price deals available to you and when it might be a good time to stay put or refinance.

If you’ve been with your lender for awhile, even just a couple of years, talk to us today for free and avoid paying a hefty Loyalty Tax.

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