By Philippa Billings, Head of Advice, Otivo
Banking has an open secret with a nickname — the loyalty tax. Lenders compete hardest for customers they don't have yet, offering their sharpest rates to new borrowers while existing customers drift upward, often without noticing. The ACCC put numbers on the pattern in its Home Loan Price Inquiry — as at 2020, borrowers with loans more than three years old were paying on average around 58 basis points more than new borrowers, with the gap widening the older the loan. On a large mortgage, that's thousands of dollars a year for the privilege of not asking. Here's how a rate review works, and why the phone call has such a strong hourly rate.
The loyalty tax describes the gap between interest rates lenders offer new customers and the higher rates long-standing customers often pay on comparable loans. The ACCC's Home Loan Price Inquiry documented the pattern, finding older loans carried progressively higher average rates. A rate review — asking a lender to match its new-customer pricing — is free, and refinancing is the alternative when it fails.
Why do older home loans end up on higher rates?
Because pricing works in one direction by default. Lenders advertise competitive rates to win new business, and they discount hardest where competition is fiercest — the front door. Existing borrowers sit on the rate they signed at, adjusted for official rate moves, but rarely receiving the deepening discounts new customers get. Nothing sinister has to happen to any individual loan. The drift is structural — inattention is priced.
The ACCC's inquiry measured the result. In its 2020 final report, loans between three and five years old averaged about 58 basis points above new loans, loans five to ten years old around 71 basis points above, and loans over ten years old about 104 basis points above. Rates across the market have moved plenty since, but the mechanism the inquiry documented — the gap between front-book and back-book pricing — is a feature of how the market competes, not a moment in time.
Half a percent doesn't sound dramatic until it's applied to mortgage-sized numbers. On a $600,000 balance, 0.5 percentage points is $3,000 a year in interest, every year the gap persists.
How does a rate review call actually go?
There's a reliable structure to it — call it the four-step rate review.
- Prepare the comparison. Check the lender's advertised rate for new customers on an equivalent loan — same loan-to-value ratio, same features — and note any widely advertised market rates for similar borrowers. This is the leverage.
- Ask the direct question. What rate is being offered to new customers on this loan today, and can this loan be moved to it? Front-line staff often have discretion to apply retention pricing.
- Escalate once. If the first answer is no, asking for the retention or customer-retention team is standard practice — that team exists precisely because keeping a borrower is cheaper for a lender than losing one.
- Know the alternative. If the lender won't move, the genuine alternative is refinancing to a lender who will. Borrowers who mention they're comparing options tend to get sharper answers, because the statement is credible when it's true.
Ten to twenty minutes, no cost, and the outcome is either a lower rate or clear information that it's time to shop. Many Australians repeat the exercise every year or two, treating it like an insurance renewal rather than a confrontation.
When does refinancing become the better move?
When the current lender won't close the gap and the numbers clear the switching costs. Refinancing involves discharge fees on the old loan and application, valuation, and government fees on the new one — typically hundreds to over a thousand dollars all up — so the rate saving needs time to outrun the cost. The longer the property will be kept and the larger the balance, the faster that happens. ASIC's MoneySmart sets out the mechanics and the costs worth tallying before switching.
The comparison worth making is total cost, not headline rate — comparison rates fold most fees in, and features like offset accounts carry value that a raw rate ignores. A slightly higher rate with a full offset can beat a lower rate without one, depending entirely on how a household banks.
What could the savings do?
This is the question that turns a rate win into a strategy. A rate reduction can simply lower the monthly repayment — or the repayment can stay the same, with the difference quietly attacking the principal, shortening the loan and compounding the saving. The same dollars could instead go towards higher-interest debts, super contributions, or a buffer. The right destination depends on the household.
Working out where extra repayment capacity does the most good is exactly what Otivo's debt module does — weighing debt types, repayment details, income, and expenses to find effective ways to pay debt down while covering essentials, as regulated advice under Otivo's AFSL and Australian Credit Licence No. 485665. The phone call gets the rate. The plan decides what the rate is worth.
Frequently asked questions
Does asking for a rate review hurt a credit score?
No. A rate review with the existing lender involves no credit application. A formal refinance application with a new lender does appear on a credit report, which is one reason many borrowers try the review first.
How often is it worth reviewing a home loan rate?
Once a year is a common rhythm, and after any significant market move or fixed-rate expiry. The ACCC's findings suggest the gap tends to widen with loan age, which makes long gaps between reviews the expensive habit.
What information helps before calling?
The current rate and loan balance, the loan-to-value ratio, the lender's advertised new-customer rate on an equivalent product, and a sense of comparable market offers. Borrowers with strong repayment histories and lower loan-to-value ratios generally have the most room to negotiate.
Sources
- ACCC — Home Loan Price Inquiry, final report, 2020. accc.gov.au
- ASIC MoneySmart — Switching home loans. moneysmart.gov.au
- ASIC MoneySmart — Comparing home loans. moneysmart.gov.au
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.