What is mortgage loyalty tax?
The mortgage loyalty tax is the hidden cost of staying on the same home loan without reviewing it. As lenders compete for new customers, they often introduce sharper rates and offers that existing borrowers don't automatically receive.
The result is a growing gap between what you're paying and what's available in the market. Left unchecked, that gap can quietly cost thousands of dollars over the life of your loan. That's money that could be invested, used to pay off your mortgage sooner, or spent on the things that matter most, like your kids' education or that long pending vacation.
Your mortgage should work as hard as you do. Reviewing it regularly helps make sure it does.
What is the loyalty tax costing Australians?
The loyalty tax isn't just a marketing term. It has been investigated by Australia's competition regulator.
In 2020, the Australian Competition and Consumer Commission (ACCC) found that the gap between interest rates paid by new and existing borrowers generally increases the longer a loan remains with the same lender.
As of September 2020, the average rate difference was:
(Source: ACCC, Home Loan Price Inquiry Final Report, November 2020, accc.gov.au)
The Australian Treasury summarised the finding plainly: "Borrowers can save thousands of dollars in the first year alone by switching lenders or products or asking for a better deal, with older loans around 58 basis points higher than the average rate for new loans."
What does this mean in dollars?
Using Australian Bureau of Statistics and ACCC data, we estimate the mortgage loyalty tax costs Australian homeowners at least $3 billion every year.
We calculated this using Australian government data exclusively:
- 3.8 million Australian households hold a mortgage (ABS, 2021 Census of Population and Housing)
- The national median outstanding mortgage balance is $275,000 (ABS, Survey of Income and Housing 2019-20, the most recent official figure)
- At least half of mortgaged households have held their loan for three or more years, a conservative assumption given standard loan terms of 25 to 30 years
The ACCC documented the average rate gap for borrowers three to five years in: 0.58% 1.9 million households x $275,000 x 0.58% = approximately $3.03 billion per year
Importantly, this is likely a conservative estimate. The ABS median mortgage balance is based on 2019–20 data, before the sharp increase in property prices and loan sizes. The average new owner-occupier loan today exceeds $735,000, suggesting the true cost is likely to be materially higher.
What has changed since the ACCC inquiry?
Competition has intensified since the ACCC's 2020 inquiry, with lenders competing more aggressively for borrowers and many homeowners renegotiating or refinancing their loans.
As a result, the average gap between new and existing variable mortgage rates has narrowed significantly. According to the Reserve Bank of Australia's February 2026 Bulletin, the spread between average new and outstanding variable rates fell from around 35 basis points in 2019 to approximately 3 basis points by December 2025.
That doesn't mean the mortgage loyalty tax has disappeared. It means many borrowers have already acted. Homeowners who reviewed their loan or refinanced between 2023 and 2025 likely closed much of the gap. Those who haven't looked at their mortgage for several years may still be paying the rate they accepted in 2020, 2021 or 2022.
The loyalty tax does not fall uniformly. It falls hardest on the most disengaged.
What does the loyalty tax mean for you?
On a $735,000 home loan—the current average new owner-occupier loan, according to the ABS Lending Indicators (March Quarter 2026)—a 0.58% difference in interest rate could cost around $4,263 a year in additional interest.
Over a typical 25-year principal and interest loan, that's approximately $117,000 in extra interest paid over the life of the loan.
Even on the ABS median outstanding mortgage balance of $275,000, the same rate difference could add around $44,000 to the total cost of the loan.
The exact amount will vary depending on your loan size, interest rate and remaining loan term, but even a relatively small rate difference can have a significant impact over time.
Methodology: Bheja.ai calculations apply the 0.58% average interest rate gap identified in the ACCC's Home Loan Price Inquiry to Australian Bureau of Statistics loan balance data. Interest calculations assume a 25-year principal and interest loan using an average new owner-occupier variable rate of 6.12%, based on Open Banking Product Reference Data for Australian lenders (July 2026). Individual outcomes will vary depending on loan balance, remaining term, interest rate and lender.
"Did you know…
In markets where regulators have actually measured it, the mortgage loyalty tax costs homeowners more than A$100 billion every year. The real number is almost certainly larger.
That money is yours. Bheja.ai helps you take it back."
Why do most borrowers keep paying it?
The ACCC identified three structural reasons borrowers do not act even when the savings are substantial:
Information asymmetry. Pricing information is not easily accessible or transparent. Most borrowers do not know what rate a new customer would be offered at their own bank today.
Switching friction. The discharge and switching process is unclear, uncertain, and lengthy enough that many borrowers who start the process give up.
Low engagement. The complexity of the home loan market and the effort required to act keeps most borrowers passive.
(Source: ACCC, Home Loan Price Inquiry Final Report, November 2020, accc.gov.au)
The ACCC also found that banks have no strong incentive to make pricing more transparent. The system is designed to preserve this asymmetry.
What can you do about it?
The good news is that the mortgage loyalty tax isn't permanent.
Most borrowers can reduce or eliminate it by reviewing their home loan regularly rather than assuming their current rate is still competitive. An annual mortgage review can help you:
- Check whether your current rate is still competitive.
- Negotiate a better deal with your existing lender.
- Compare offers from other lenders.
- Refinance if the savings outweigh the switching costs.
The goal isn't to switch lenders every year. It's to make sure you're not paying yesterday's rate in today's market.
How Bheja helps
The challenge isn't knowing you should review your mortgage, it's finding the time to do it.
Comparing lenders, checking rates, filling in applications and gathering paperwork can be tedious, which is why many homeowners put it off for years.
Bheja uses Open Banking to automate much of that process.
Instead of manually entering your loan details and comparing hundreds of products yourself, Bheja securely analyses your current mortgage, compares it against live rates from more than 100 lenders, and shows whether you're paying more than you need to.
If there's a better option, Bheja matches you with suitable lenders, pre-fills much of the application using your securely shared financial data, and guides you through refinancing from start to finish. It also continues monitoring your mortgage over time, so you're alerted when a better opportunity becomes available.
Because your mortgage shouldn't just be competitive today, it should stay competitive. The only permanent solution is continuous monitoring. That is what Bheja.ai is.
Your mortgage has a leak.
Your bank knows.
Now... you know too.
If you know someone paying off a home loan, a friend, a family member, a colleague, tell them about Bheja.ai
Because that $100,000? It belongs to them.
- Pravin Mahajan, Founder, Bheja.ai
Run your free personalised mortgage health check at bheja.ai
