Paying 6.5% on Your Home Loan? You Are Paying a 'Loyalty Tax'. How to Refinance and Save $4,000/Year

Paying 6.5% on Your Home Loan?

If you took out a home loan 3 or 4 years ago and haven't checked your interest rate since, sit down. You are likely being ripped off.

In Australia, there is a dirty secret in the banking industry called the "Loyalty Tax" (or Back Book vs. Front Book pricing).

Simply put: Banks offer cheap "honeymoon rates" to attract new customers while quietly increasing rates for existing, loyal customers like you. The difference can be massive, and it is costing you thousands of dollars.

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The Maths: Why 1% Matters

You might think, "My rate is 6.79%, and the new rate is 5.79%. It's only 1% difference. Is it worth the hassle?"

Absolutely.

💰 The Savings Calculation

On a typical $500,000 mortgage over 25 years:

• At 6.79%: Monthly Repayment = $3,488
• At 5.79%: Monthly Repayment = $3,166
• Monthly Saving: $322
• Yearly Saving: $3,864 (Tax-Free!)

That is nearly $4,000 extra in your pocket every year just for filling out some paperwork.

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Step 1: The "Retention Team" Hack

You don't always need to switch banks to get a better deal. Sometimes, you just need to threaten to leave.

1. Check online to see what your bank is offering to new customers.
2. Call your bank and say: "I see you are offering 5.89% to new customers. I am currently paying 6.69%. I would like you to match that rate, or I will ask for a Discharge Form to switch to another lender."
3. You will likely be transferred to the Retention Team. Their entire job is to stop you from leaving. They have the power to slash your rate instantly on the phone.

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Step 2: Refinancing (Switching Banks)

If your bank refuses to budge, walk away.

Refinancing involves taking out a new loan with Bank B to pay off your debt with Bank A. Bank B wants your business, so they might offer:

• Lower Interest Rate: The main goal.
• Cashback Offers: While the "Big 4" banks have largely stopped these, many challenger lenders (like IMB, Greater Bank, or ME Bank) are still offering $2,000 to $4,000 cashback to win your business in 2026.

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⚠️ The "Mortgage Prison" Trap (APRA Buffer)

Before you apply, you must understand the 3% Serviceability Buffer.

When you switch banks, the new lender must test if you can repay the loan at current interest rate + 3%. If your new rate is 6%, they test you at 9%.

If your income hasn't grown, you might fail this test even if you are currently making repayments comfortably. This is called "Mortgage Prison." Always ask a broker to run a serviceability calculation before applying to avoid a mark on your credit file.

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Stop Paying the Lazy Tax

Your mortgage is likely your biggest monthly expense.

Don't pay the "Lazy Tax." Set aside one hour this weekend to review your rate. Saving $4,000 a year for one hour of work is the best hourly wage you will ever earn.

General Advice Warning: The information provided in this article is general in nature and does not take into account your personal financial situation or needs. Interest rates, fees, and lending criteria (including serviceability buffers) are subject to change. Before making a decision to refinance, you should read the relevant credit guide and consider speaking with a qualified mortgage broker.