Refinancing Mistakes and Official Sources
The home loan loyalty tax: how to ask your lender for a lower rate
Why existing Australian borrowers often pay more than new customers, how to check your rate against new-customer offers, and a step-by-step script for asking your lender to reprice.
Many Australian lenders charge existing customers more than the rates they advertise to new borrowers for the same loan type, a gap often called the loyalty tax. The ACCC's home loan price inquiry, which reported in 2020, found that borrowers with older loans typically paid higher rates than new borrowers on comparable loans. You can usually close much of that gap by ringing your lender with a competing offer and asking for a rate review, without paying switching costs or going through a full credit assessment. On an illustrative $550,000 balance, getting 6.59% down to 6.09% saves about $171 a month.
This guide is part of home loan refinancing mistakes. Rates are illustrative.
Why the gap exists
- Discounts are set at the start. Most variable rates are a discount off the lender's standard variable rate. When advertised new-customer discounts grow, your older discount does not change automatically.
- Inertia. Many borrowers never review their loan, and lenders know switching takes effort.
- Your LVR may have improved. If you have repaid the loan or values have risen, you may now qualify for a cheaper LVR band, but the lender may not reprice you unless asked.
How much it costs: worked example
$550,000 owing, 25 years left, owner-occupier, principal and interest:
| Rate | Repayment | Difference | |
|---|---|---|---|
| Your current rate | 6.59% | $3,744.63 | - |
| New-customer rate for the same loan | 6.09% | $3,573.98 | $170.65 a month less |
First-year interest saved is roughly $550,000 x 0.50% = $2,750. Over 25 years, the lower rate saves about $51,000 if nothing else changes.
Step 1: find your numbers
From your latest statement or app:
- Current interest rate and loan type (variable P&I owner-occupier, for example)
- Balance and remaining term
- Rough property value, so you can estimate your LVR
Then find what the same lender and two competitors offer new customers for the same loan type and LVR band. Lender websites show new-customer rates; the comparison rate shows whether fees differ.
Step 2: get a competing offer in writing
A written conditional offer or indicative rate from another lender, or a broker's comparison, carries more weight than "I saw a lower rate online". It also tells you whether switching would actually work for you.
Step 3: call the right team
Ask for the retention or pricing team, or say you are considering refinancing. A script:
If the answer is no or a small cut:
Some lenders let you request a rate review online or in the app. Ask for the new rate in writing, and check the date it applies from.
Step 4: ask for a revaluation if your LVR has improved
If your LVR may have fallen under a band threshold, such as 80% or 70%, ask the lender for a desktop or full valuation and a reprice into the lower band.
Step 5: decide
| Lender's response | What to do |
|---|---|
| Matches or nearly matches the best offer | Accept; confirm in writing and check your next statement |
| Partial cut | Run the refinance calculator with the remaining gap and switching costs |
| Refuses | Refinance if break-even is short; see the refinance worked example |
Check that the new rate took effect
After a reprice, check your next statement or the app's interest line. Interest is usually calculated daily, so a 30-day month gives a quick test:
On $550,000 at the new 6.09%: $550,000 x 6.09% / 365 x 30 = about $2,753.01. At the old 6.59% the same month would have cost about $2,979.04. If the charge is still near the old figure, call the lender; the new rate may start from a later date or may not have been applied. Also check whether your repayment was reduced automatically. If you can afford it, keep paying the old repayment so the saving shortens the loan; see extra repayments worked example.
Make it a habit
Rates and new-customer offers shift over time. A review every year, and whenever the cash rate moves or a fixed term ends, keeps the gap from reopening. Many borrowers set a calendar reminder each July along with their tax return.
When repricing is the better choice than refinancing
- Your income has fallen or your debts have grown, so a new lender may not approve you under the serviceability buffer
- Your LVR is above 80% and a new lender would require LMI
- Part of the loan is fixed with break costs
- The balance is small, so switching costs take years to recover
Frequently asked questions
Will asking for a lower rate hurt my credit file?
A rate review with your current lender usually does not involve a new credit application. A formal application with a new lender does record an enquiry.
Can my lender put my rate back up?
A variable rate can change at any time under the contract. Lenders generally move rates with their wider pricing, so review again after future changes.
Does a broker help with repricing?
Some brokers will request a reprice from your existing lender on your behalf, especially if they arranged the loan. You can also do it yourself.
Is the loyalty tax illegal?
No. Lenders can price existing and new loans differently. Regulators have highlighted the practice and encouraged borrowers to review their loans.
Sources
- ACCC — home loan price inquiry reports
- ASIC Moneysmart — negotiating a better rate
- Reserve Bank of Australia — lending rate statistics for new and outstanding loans
