Why Staying with the Same Lender Can Cost You Thousands
Are you paying the "loyalty tax"? Staying with your bank can cost thousands. Imperium Finance explains how to review your home loan and save.
When it comes to home loans and investment loans, loyalty does not always pay. While some smaller lenders reward long term customers, many of the major banks quietly do the opposite. They attract new clients with sharp deals, then allow existing borrowers to drift onto higher rates and less flexible terms. This hidden penalty is often referred to as the “loyalty tax,” and it can cost you far more than you realise.
What Is the Loyalty Tax? The loyalty tax is a term used in the industry when there’s a financial penalty you pay for staying with the same lender without reviewing your loan. New customers are offered competitive rates, while existing borrowers are left paying more for identical products.
For investors and owner occupiers alike, this complacency can erode borrowing capacity, reduce cash flow, and delay financial goals.
Why It Matters for Borrowers The cost of loyalty is not always about interest. Lenders apply rules differently to existing clients, and this can restrict your options.
Interest Rates: The most obvious example of loyalty tax is the rate itself. You may see your bank advertising rates significantly lower than the one on your loan statement, but those discounts are reserved for new customers.
Policy Restrictions: Lenders' internal policies can trap you. For example:
Debt to income limits may be stricter.
Rental yield assessments may reduce borrowing power.
Buffers applied to existing loans can block further lending.
Negative gearing policies can vary significantly between lenders.
Income Treatment: Self-employed borrowers, or those with variable income outside their base salary, are often treated more conservatively over time. What was once an acceptable income source may later be excluded, simply because policy has shifted.
Valuation Policy: Even property valuations can differ by lender. Staying with one bank means you are locked into their method, which may not reflect the true market value and can limit your equity release or refinancing options.
The Cost of Complacency For many borrowers, loyalty tax adds up to tens of thousands of dollars over the life of a loan. More importantly, it limits your ability to take advantage of opportunities from refinancing to fund renovations, to leveraging equity for another investment property, to simply lowering monthly repayments and improving cash flow.
How to Avoid Getting Stung
Review regularly: Do not wait for the bank to call you, they won’t - until you decide to leave them.
Look beyond the rate: Policy, features, and flexibility can matter just as much.
Get independent advice: A good broker can compare across the market and negotiate sharper deals, while ensuring the loan structure works for your goals.
Final Thoughts Complacency is the most common mistake borrowers make, and the banks know it. The loyalty tax is not just about paying more interest; it is about restrictions on policy, valuations, and future borrowing power.
The smartest move is to treat your loan like any other major financial decision: review it regularly, compare your options, and do not assume your current lender has your best interests at heart. By staying proactive, you avoid paying the loyalty tax and keep your money and your goals where they belong: with you.