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Is your bank charging you a loyalty tax on your home loan?

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Last week, the ACCC released its Home Loan Price Inquiry interim report which showed, on average, banks charge existing home loan customers 0.26% more than new customers.

At Lendi, we’ve been campaigning about this loyalty tax for some time. Our customer data shows the discrepancy between what banks charge new and old home loan customers can be close to 1% and it’s our job to make sure property owners get the best deal possible on their mortgages - so the loyalty tax is an issue we try to shine a light on.

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What did the ACCC interim report find?

  • Customers with new owner-occupier loans with principal and interest repayments were paying, on average, 26 basis points less than customers with existing loans.
  • The difference was usually even more significant for customers with older loans. In most cases, the average difference is even more significant for customers with older loans.
  • For example, as at 30 September 2019, the big four banks’ customers whose existing owner-occupier loans with principal and interest repayments which were greater than five years old were, on average, paying 40 basis points above what the big four banks’ customers with new loans were paying.

How does this affect your wallet?

At Lendi, we’ve been reducing our customers' rates by an average of 0.89% since June last year*.

And if we look at the rates homeowners refinanced to on our platform in April 2020, the median interest rate negotiated was 2.72% for owner occupier, principal and interest loans.

Below we examine the difference in interest payable by customers who are on our current median interest rate for refinance (2.72%) versus those paying an additional 0.26% or 0.40% or 0.89% on their rate. A few percentage points add up to a lot of additional interest.

$500K loan (OO, P&I, 25 year term)Interest rateMonthly repaymentTotal interest payable over 25 years
Current refi market rate2.72%$2,299$189,665
Market rate plus 0.26%2.98%$2,366$209, 758
Market rate plus 0.40%3.12%$2,402$220,714
Market rate plus 0.89%3.61%$2,533$259,814

Customers paying 26 bps more than the current median refinance interest rate are paying an extra $67 a month or $804 over 12 months. That adds up to $20,093 in additional interest over the life of a 25 year loan.

Customers paying 40 bps more than the current median refinance interest rate are forking out an extra $103 a month or $1,236 over 12 months. That adds up to $31,049 in additional interest charges over the life of a 25 year loan.

Customers paying 89 bps more than the current median refinance interest rate are paying an extra $234 a month or $2,808 over 12 months. That adds up to $70,149 in additional interest over the life of a 25 year loan.

Don't let the banks charge you for your loyalty. If you would like to see how much you could save, check if you are paying too much on your home loan by reviewing your rate.

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*The estimated average future interest savings is calculated as at 15 April 2020 based on Lendi assisting customers into new loans with an average interest rate reduction of 0.89% for the 11 months prior, and assuming a median loan term of 26 years on both the old and new loan and all monthly principal and interest repayments will be made on time. Any future savings figures are estimated averages only, and do not take into account any product features or fees (including refinancing or break costs). Your savings will be different.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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Tags: rba cash rate, reserve bank, interest rate, refinance, new purchase

Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates

Check today's low rates

Tell us what you are looking for and see if you can save.

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856, Credit Representative 518849), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of lenders including ClickLoans, a related body corporate of Auscred Services. Although Lendi compares over 1600 products from over 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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