Beat the Mortgage Loyalty Tax: Save Now!

In a dream world, showing some loyalty would net you more than just a pat on the back—think heartfelt thank you notes or even a lovely bouquet. But when it comes to your mortgage, sticking around might not be so rewarding. In fact, it can be pretty darn costly.

Welcome to the not-so-sweet world of the “loyalty tax.” This pesky little expense crops up when long-standing homeowners find themselves shelling out more in interest than the fresh faces just walking through the door. Every year, this sneaky surcharge nips at the wallets of countless Aussies. So, what’s the deal with this mortgage loyalty tax? Could you be coughing up extra cash without even realizing it? And more importantly, how can you sidestep this financial faux pas?

What Exactly is the Mortgage Loyalty Tax?

Think of it as the hidden cost of being a dedicated customer. Although it's not officially a tax, the so-called mortgage loyalty tax kicks in when lenders tempt newbies with lower interest rates, while the loyal crowd gets stuck with the heftier bills. This is all in the name of profit.

Let’s break it down with numbers—here’s a look at how variable interest rates stack up for new versus existing home loan customers:

• New Customers: Enjoy sweeter deals to make them sign on the dotted line.
• Existing Customers: Face rate hikes, especially noticeable when rates generally rise. Even when rates fall, the decreases are sharper for newcomers.

Even in a stable rate climate, banks are busy wooing new customers with lower rates because, well, they’ve already got you on the hook.

The takeaway? New loan borrowers snag awesome deals, while those with older loans feel the pinch over time.

Why You Should Care About Dodging the Loyalty Tax

Evading this tax could be one of the biggest savers (or spenders) in your life. Consider this: Over a 30-year term on a $500K mortgage, you could save a whopping $52,557 in interest. Yeah, that's no pocket change.

How to Escape the Loyalty Tax Trap

It may seem harsh, but from a lender’s perspective, their strategy of offering discounts to attract new customers while maintaining profits makes sense. However, this means existing customers often pay more, especially when the market slows and competition for new clients heats up.

Why the Loyalty Tax Stings So Many

• Invisibility: It’s easy to miss unless you're regularly checking your rates—something few of us do.
• Complacency: Many homeowners “set and forget” their home loans, making them prime targets for this tax.
• Market Fluctuations: As market dynamics shift, so do opportunities for lenders to adjust their strategies, often at the cost of their loyal customers.
• Gradual Changes: The rate changes are small but accumulate over time, making them hard to spot until it’s too late.
• Perceived Difficulty: Changing mortgages seems daunting, especially if you remember how tough it was the first time around.

Keeping the Loyalty Tax at Bay

Here’s how to ensure you’re not overpaying:

• Regular Reviews: Check your mortgage annually—align it with other financial reviews like taxes or insurance for convenience.
• Expert Advice: Utilise mortgage brokers who can help navigate the options and secure the best possible deal.
• Craggle Fairness Check: Our Fairness Check can compare your current rate against similar home loans in the market to see if you’re getting a fair shake.

In short, while the mortgage loyalty tax is a bummer, it’s not unbeatable. With a bit of diligence and the right guidance, you can avoid paying more than necessary and keep your finances in check.