Most Perth homeowners do not know what interest rate they are currently paying. And of those who do know the number, very few have checked recently whether it is still competitive compared to what other lenders are currently offering. If you took out a home loan more than 12 months ago and have not reviewed it since, there is a real possibility that you are overpaying on your home loan without even realising it.
This is not a small issue. The difference between a competitive rate and an uncompetitive one on a typical Perth home loan can amount to thousands of dollars per year. This article explains why loyal bank customers are often the ones paying the most, what the so-called loyalty tax actually costs in real terms, and what you can do about it today. Banks call it “customer retention.” Everyone else calls it overpaying on your home loan and quietly wondering where your money went.
What Is the Loyalty Tax?
The loyalty tax is the informal name given to the phenomenon where long-term customers of a bank end up paying higher interest rates than new customers who have just switched to that same lender. It sounds counterintuitive. You would expect that being a long-term, reliable customer would earn you better treatment. In practice, the opposite is often true.
Banks compete aggressively for new business by offering sharp introductory rates, cashback deals, and fee waivers to borrowers who switch to them. These offers are funded, at least in part, by the higher rates charged to existing customers who stay put and never ask for a review. The bank’s calculus is straightforward: customers who do not ask are unlikely to leave, so there is no financial pressure to offer them a better deal unprompted.
Industry data consistently shows that the gap between the average rate paid by existing bank customers and the best available rates in the market is material. In 2025, the Australian Competition and Consumer Commission reported that borrowers who had held their loan for three or more years were, on average, paying significantly more than comparable borrowers who had recently switched lenders or negotiated a rate reduction.
How Much Could the Loyalty Tax Actually Cost You?
The real cost depends on your loan balance, the size of the rate gap, and how long the situation has been in place. But to put some numbers around it, consider a $650,000 home loan with 22 years remaining. If your current rate is 0.4% higher than what a competitive lender would offer you today, the difference in monthly repayments is approximately $170. Over 12 months, that is $2,040 you have paid unnecessarily. Over five years, allowing for the loan balance to reduce, the excess interest paid could be in the range of $9,000 to $10,000.
On a $750,000 loan with the same 0.4% rate gap, the monthly difference rises to approximately $200 and the five year excess approaches $12,000. These are conservative estimates based on a modest rate gap. If your rate is 0.6% or 0.7% above the market, the numbers increase proportionally.
Use our Mortgage Switching Calculator to get a personalised estimate of what your potential savings could look like based on your current loan balance and rate.
Why Do Banks Not Just Offer Their Best Rate From the Start?
Banks are businesses, and their pricing strategy is designed to maximise revenue while retaining customers. Offering the best available rate to all existing customers at all times would reduce the bank’s interest income significantly. Instead, banks rely on customer inertia. The effort involved in reviewing and switching a home loan feels large enough that many borrowers simply do not do it, even when the financial case is clear.
The process of refinance/">refinancing is also less well understood than it should be. Many homeowners assume it is complex, time-consuming, and risky. In practice, a straightforward refinance for a borrower with a clean financial profile typically takes two to six weeks and involves minimal disruption. Working with a mortgage broker makes the process even simpler, as the broker manages the entire application on your behalf.
How to Find Out If You Are Overpaying
The first step is to find out exactly what interest rate you are currently paying. Check your most recent loan statement or log into your online banking and look for the current interest rate on your home loan. If you have a variable rate loan, this should be visible in your account details. If you are on a fixed rate, note when the fixed period ends, because the rate you roll onto at the end of the fixed term may be significantly higher than current market rates.
Once you know your current rate, the next step is to compare it against what is currently available. This is where the picture often gets uncomfortable for long-term bank customers. A mortgage broker can show you what rates are actually available for a borrower with your profile across their full lender panel, including rates that are not publicly advertised.
You can also use our Loan Comparison Calculator to compare your current loan against other options. Bear in mind that advertised rates are not always the rates actually available to borrowers with your specific profile and loan size, so speaking with a broker gives you a more accurate comparison.
What About Break Costs and Exit Fees?
A common concern when considering refinancing is the cost of leaving the current lender. For variable rate loans, exit or discharge fees in Australia are modest, typically between $150 and $400. There are no break costs for variable rate loans. The new lender may also charge establishment or settlement fees, and there are government fees for discharging and registering the mortgage, typically $300 to $500 in WA.
For fixed rate loans, the situation is more complex. Breaking a fixed rate contract early can trigger break costs that in some cases run to thousands of dollars, depending on how long is left on the fixed term and how much rates have moved since you fixed. If you are on a fixed rate, it is essential to obtain a break cost estimate from your current lender before proceeding.
For most variable rate borrowers, the total cost of switching is relatively modest and is typically recovered within six to twelve months of lower repayments on the new loan. A broker can calculate the exact break-even point for your situation before you make any decisions.
What Happens When You Ask Your Bank for a Better Rate?
One option before switching is to simply call your bank and ask for a rate reduction. This is known as a retention request, and it works more often than most borrowers expect. Banks have retention teams whose job is to keep customers who are considering leaving, and they often have authority to offer rate discounts that are not available through normal channels.
However, there are limits to how much your bank will move without the genuine threat of competition. The best outcomes from a retention call typically come when you have a competing offer in hand and can demonstrate that you are seriously considering switching. This gives the bank a clear financial incentive to sharpen their pencil.
Even if your bank does offer a rate reduction, it is worth checking whether the adjusted rate is genuinely competitive or simply less uncompetitive than before. A broker can tell you whether the offer is worth accepting or whether you would still be better served by switching.
The Case for an Independent Annual Loan Review
The most effective way to ensure you are never paying the loyalty tax is to have your home loan reviewed by a mortgage broker on a regular basis. An annual review costs nothing, takes very little of your time, and ensures that you have an independent view of whether your current loan remains competitive.
A broker can compare your loan against the current market, flag any better options that exist, and give you an honest assessment of whether switching makes financial sense at that point in time. Even if the conclusion is that your current loan is fine for now, having that confirmed by someone who has compared it across the market is more reassuring than simply assuming your bank is treating you fairly.
What Types of Borrowers Are Most Likely to Be Overpaying?
Borrowers who took out a loan more than two years ago and have not reviewed it since are among the most likely to be overpaying. Those who are on a standard variable rate that has never been specifically negotiated are also at risk. Borrowers whose fixed rate period recently ended and who rolled onto the lender’s standard variable rate without reviewing alternatives are often paying rates that are well above the current market.
Long-term customers of major banks who have never switched or queried their rate, and borrowers who chose a loan based on a relationship with a particular bank branch rather than on the basis of a market comparison, are also commonly in this category.
If any of these descriptions apply to you, a loan review with Central Lending Solutions could identify savings that make a real difference to your finances. Our team reviews your current loan against the market, tells you plainly whether you are overpaying, and identifies the most competitive options available for your situation. Contact us today to book a free loan review.
Is Refinancing Always the Answer?
Not always. There are situations where staying with your current lender makes sense, at least for now. If you are close to the end of a fixed rate period, waiting until the fixed term expires avoids break costs. If you have recently changed employment or your financial circumstances have changed, your ability to refinance may be temporarily limited. If you are planning to sell the property in the near future, the savings from a lower rate may not justify the switching costs.
A mortgage broker can assess your specific situation and tell you honestly whether switching makes financial sense right now, or whether it would be better to wait. The goal is always to find the outcome that is genuinely best for you over the medium to long term, not simply to generate a refinance for its own sake.
Frequently Asked Questions
How do I find out what interest rate I am currently paying?
Check your most recent loan statement or log into your online banking. Your current interest rate should be listed in your loan account details. If you have multiple loan accounts or an offset arrangement, make sure you are looking at the rate on the loan itself rather than the savings or offset account. If you are unsure, a quick call to your bank’s customer service line will confirm it.
How often should I review my home loan?
Once every one to two years is a reasonable guideline for most borrowers. You should also review your loan whenever there is a significant change in your financial situation, when your fixed rate period is coming to an end, or when there has been a notable change in the interest rate environment such as a series of RBA rate cuts. An annual review with a mortgage broker costs nothing and ensures you always have a current picture of whether your loan is competitive.
Will refinancing hurt my credit score?
Submitting a refinance application results in a credit enquiry on your file, which has a small and temporary impact on your credit score. A single enquiry is unlikely to cause any meaningful harm. What can be more damaging is submitting multiple applications to different lenders in a short period, which creates multiple enquiries. Working with a mortgage broker avoids this, as the broker identifies the right lender before submitting a single application.
Can I refinance if I have missed repayments in the past?
It depends on the nature and recency of the missed payments. Minor payment history issues from several years ago may not prevent refinancing, particularly if your financial record since then has been clean. More recent defaults or a pattern of missed repayments will be assessed differently by lenders. A broker can advise on which lenders are most likely to consider your application based on your specific credit history.
What is the difference between a rate reduction and a full refinance?
A rate reduction involves negotiating a lower rate with your existing lender while keeping the same loan and all its existing terms. A full refinance involves closing your current loan and opening a new one, either with a different lender or in some cases with your existing lender on new terms. A rate reduction is faster and involves no switching costs, but the rate your bank will offer through retention is often not as competitive as what is available by switching. A broker can compare both outcomes for your situation.
Find Out If You Are Overpaying on Your Home Loan
Our team at Central Lending Solutions provides free loan reviews for Perth homeowners. We compare your current loan against the market, identify whether you are paying the loyalty tax, and show you exactly what a more competitive rate could save you. There is no obligation and no cost to you. Book your free loan review today.
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We’re Here to Help
Contact our team if you have questions about home loans, refinancing, or other lending options. Call us, book a time to speak, or send us an email and we will get back to you.
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info@centrallendingsolutions.com.au
Central Lending Solutions is a Perth-based mortgage brokerage with over 20 years of experience in the finance industry. Our team helps clients compare lenders and navigate the home loan process from enquiry through to approval.
