A loyalty card with your local cafe isn’t such a high-stakes thing. But the loyalty card you have with your bank is a killer. That one’s invisible. Borrowers who stick with the same lender year after year are probably being slugged with a ‘loyalty tax’, according to new data from CoreLogic.
Owner-occupiers who took out new variable loans in April 2021 were charged an average interest rate of 2.77% p.a. However, owner-occupiers with existing variable mortgages were charged an average of 3.10% p.a. That’s the Loyalty Tax! It’s a substantial 0.33 percentage points. The comparison only covers an 18 month period, back to October 2019. If your home loan was written in 2014, for example, you should expect a much starker difference.
Have a look below at the comparison between a variable home loan of October 2019 to April 2021
Investors had to pay an even larger loyalty tax. Their variable loans averaged 3.06% for new borrowers and 3.44% for existing borrowers. Just look at that gap of 0.38 percentage points.
For a $500,000 mortgage, those interest rate differentials can add up to a lot of money over the life of the loan:
- You pay $31,887 less interest over 30 years with a rate of 2.77% p.a. rather than 3.10% p.a.
- You pay $37,539 less interest over 30 years with a rate of 3.06% p.a rather than 3.44% p.a.
Getting a home loan health check at the 3 to 5 year mark is crucial, so get in touch with your mortgage broker to see how much you can save on your home loan.