Loyalty tax: are you paying it?
Today we take a look at what the loyalty tax is, why loyalty to your bank can cost you thousands, and how you can avoid paying it.
Did you know the average Australian homeowner is paying more than $37,000 in extra interest over the life of their home loan due to the loyalty tax?
It’s this sneaky trick where borrowers with older mortgages are typically charged a higher interest rate than borrowers with new loans, and it was confirmed in a study by the Reserve Bank of Australia (RBA).
You see, the banks don’t think you’re paying attention, and as such, they only offer their lowest rates to new customers, in a bid to win them over.
For example, RBA June 2021 figures show the average difference in home loan interest rates between new and existing owner-occupier borrowers was 0.46%.
On an average loan size of about $400,000, that 0.46% difference on a 30-year loan means a borrower would pay an additional $37,462 in interest over the life of the loan.
That’s $1,249 per year, per household.
Athena Home Loans research estimates this costs Australian households a total of $9.1 billion per year.
The ACCC published a report in December 2020 with several recommendations to prevent this unfair practice, but nothing much has come of it since.
Meanwhile, more than half (56%) of those surveyed in the CoreData report say they feel trapped in their current deal, while one in three people (36%) asked their lender for a drop in their interest rate but were rejected.
But with competition among lenders quite fierce right now, it’s important to know the power is in your hands.
“Rates are at an all-time low at the moment, so it’s at a crucial time when Australians need the money in their pockets, not the banks,” explains Athena CEO and Co-Founder Nathan Walsh.
Adds the RBA: “Well-informed borrowers have been able to negotiate a larger discount with their existing lender, without the need to refinance their loan.”
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