The Loyalty Tax: Existing vs New Customers

Key takeaways

• The gap grows with the age of the loan - long-held loans pay the most.
• It is not an error. It is a deliberate consequence of front-book discounting.
• A reprice request costs one phone call and often succeeds.
• Your credible threat is refinancing - and lenders know whether you have one.

Why does the gap exist?

Because acquiring a new borrower requires a competitive rate, and retaining an existing one does not - unless they ask.

A lender running a front book at a discount and a back book at the standard rate earns more overall than one pricing both the same. The customers who never call subsidise the discount offered to the ones being won from competitors.

The RBA publishes data on outstanding versus new lending rates, and the spread between the two is a persistent feature of the Australian mortgage market rather than an occasional anomaly. It widens when competition for new lending is intense.

How much is at stake?

Illustrative, at an assumed 0.40 percentage point gap - substitute your own once you know what you are paying versus the advertised rate.

These are simplified - the balance reduces over time so the true figure is somewhat lower - but the order of magnitude is right, and it is a large return on a fifteen minute phone call.

How do you close it?

Ask, with evidence. The process is mundane and it works far more often than people expect.

1. Find your actual rate. It is on your statement or in the app. Most people are wrong about it.
2. Find the lender's current advertised rate for a comparable loan, and two competitor rates.
3. Call the retention team - ask for pricing or retentions, not general customer service.
4. Say what you want: to be moved to the rate they are offering new customers, and cite the competitor rates.
5. Be genuinely prepared to move. Retention teams have discretion and use it where the risk of losing the loan is real.
6. Repeat annually. The gap reopens - this is not a one-time fix.

If they refuse, refinancing is the answer, and the discharge process is more straightforward than most borrowers assume. Weigh the switching costs - discharge fee, new application and registration fees, break costs on any fixed portion - against the saving over your expected remaining term.

Frequently asked questions

What is the loyalty tax on a mortgage?

The gap between the rate a lender charges new borrowers and the higher rate paid by existing ones. It arises because new lending is won with discounts while existing borrowers are rarely repriced unless they ask.

Will my bank lower my rate if I ask?

Often, yes. Retention teams have discretion to reprice, particularly where a borrower has a good repayment history and a credible alternative offer. It costs a phone call to find out.

How often should I ask for a rate review?

At least annually, and after any significant move in market rates. The gap reopens over time because new-customer pricing keeps moving while your rate does not.

Is refinancing worth it just for a small rate difference?

Calculate the break-even: total switching costs divided by the monthly saving gives the number of months to recover them. On a large balance even a modest difference recovers costs quickly; on a small or nearly repaid loan it may not.

Related reading

• Refinancing Your Home Loan: The Complete 2026 Process
• Deposit Rates vs Loan Rates: The Lag
• Bonus, Commission and Overtime Income

Sources

• Statistical tables - lending rates — Reserve Bank of Australia
• Home loan price inquiry — ACCC