Refinance and rate reviews
The loyalty tax: what staying with your lender actually costs
I read written lender policy for a living. One pattern shows up everywhere: the sharpest deals are built for new customers, not existing ones. Here is what that costs you, and what to do about it.
Logan-based mortgage broker - builds his own AI policy tools - Credit Rep 537545 About John
Last updated 9 July 2026
In short
Lenders compete hard for new borrowers. They quietly rely on existing customers staying put. Have you reviewed your loan in the last couple of years? If not, there is a fair chance you are paying more than a new customer would. A rate review costs you one phone call. A refinance (moving your loan to a new lender) is a well-worn path once your file is prepared properly.
What the loyalty tax actually is
The loyalty tax is the gap between what new customers are offered and what existing customers keep paying. It is not a conspiracy. It is just how lenders price. They publish sharp offers to win new loans. Then they reprice existing loans slowly, if at all. The Reserve Bank and the ACCC have both documented the pattern: older loans tend to sit on higher rates than comparable new loans.
Say you took out your loan five years ago and have not touched it since. A new customer walking into the same lender today could be offered a sharper deal than the one you are sitting on. The gap between those two deals is your loyalty tax.
The interesting part is not the pricing. It is the policy. Every lender credit guide I hold has a detailed refinance section, because refinancing is core business for them. Your lender knows how easily you could move. They are betting you will not.
Why staying put feels safe, and quietly is not
Most people stay for two reasons. Moving feels like hard work. And they quietly suspect they would not pass a new lender's assessment. The first reason is overstated. Most of the effort is gathering documents, and a broker carries the rest. The second reason is often wrong in both directions. Some people who assume they would fail are actually fine. Others who assume it is a formality have an issue on their file they do not know about yet. Guessing is the worst strategy, because the cost of doing nothing grows every month you leave it.
Not sure which of these applies to you? That is exactly what a position check answers - free, same-day reply.
What lenders actually check when you refinance
A refinance is a full loan application, not a rubber stamp. Lender policy is specific about what gets reviewed. These patterns are consistent across the credit guides I work from:
- Repayment conduct. Lenders review how you have paid all your accounts, typically over the last one to two years. Recent missed payments, accounts over their limit, or a hardship arrangement (a deal with your lender to pause or reduce payments for a while) in the last twelve months are the most common reasons a refinance stalls.
- Buffered servicing. Serviceability means whether your income can support the repayments in the lender's maths. You are not assessed on the repayment you would actually make. Lenders test whether you could still pay if rates rose by a healthy margin - this extra safety margin is called an assessment buffer. That is why some borrowers can afford their current loan but cannot yet move it.
- Overall debt. If your total debt is high compared with your income, many lenders cap the loan at a lower share of the property's value, often around 80 per cent.
- Equity. Equity is the part of your home you own outright - the property's value minus what you still owe. Refinance limits are commonly lower than purchase limits. Borrowing up to around 80 per cent of the property's value is comfortable territory. Above that, things tighten and extra costs can apply. Say your home is worth $700,000 and you owe $560,000: that is 80 per cent of its value, right on the comfortable line.
- Cash out. Cash out means borrowing extra funds on top of the balance you are moving. Most lenders tighten sharply above around 80 per cent of the property's value, and many want evidence of what larger amounts are for.
The honest costs of moving
Refinancing is not free, and pretending otherwise is how people end up disappointed. Weigh these costs before you move.
- Exit and entry costs. Discharge paperwork (the admin to close off your old loan), government registration fees and the new lender's setup costs. These are usually modest, but they belong in the maths.
- Fixed rate break costs. Leaving a fixed loan before the fixed term ends can trigger break costs, and they can be significant. Check before signing anything.
- Lenders mortgage insurance again. Lenders mortgage insurance (LMI) is the fee banks charge borrowers with small deposits - or, in a refinance, borrowers with low equity. If you own less than about 20 per cent of your home, moving may mean paying that insurance a second time. That extra cost can wipe out the benefit of moving. A small number of lenders offer loans at a higher LVR (how much of the property's value you are borrowing) without a traditional insurance premium, but eligibility applies.
- The term reset. A fresh thirty-year term lowers the repayment but raises the total interest over the life of the loan. Keep your remaining term instead. Or keep repayments at the old level, so the saving shortens the loan.
- Your situation may have changed. If you have recently become self-employed, many lenders want around two years of trading history before relying on the income. Sometimes repricing with your current lender - simply asking them for a better deal - is the whole play until your file matures.
What improves a refinance file
Most of what strengthens a refinance is boring, and it starts months early.
- Clean conduct everywhere. Aim for six to twelve months of on-time payments on every account, especially the mortgage.
- Cut card limits you do not use. Lenders assess credit cards on the limit, not the balance you actually owe. An unused limit is dead weight against your borrowing power.
- Close out buy-now-pay-later. Small balances attract outsized attention when a lender assesses your file.
- Do not spray applications. Every time you apply for credit, an enquiry is recorded on your credit file. Lenders question every enquiry from the last few months, and a cluster of them reads badly. One prepared application beats five hopeful ones.
- Mind document shelf life. Payslips generally need to be recent, often within a couple of months. Self-employed figures have their own timing rules around tax season.
- Know your likely valuation. Everything hangs off what the lender's valuer says your property is worth. A realistic estimate up front avoids surprises.
The order to do it in
This sequence costs nothing until the last step.
- Find your current rate. It is on your statement or in your banking app. Most people I ask do not know it.
- Ask your lender for a pricing review - a request for a better rate on your existing loan. It is one phone call, with no credit check. Lenders have a retention team for exactly this conversation.
- If they move enough, take the win. Set a reminder to check again in twelve months.
- If they do not, get your position checked properly before anything is lodged. That means your repayment history, equity, income and debts, checked against actual written policy.
- Apply once, to the right lender, with a complete file. That is the entire strategy.
Frequently asked questions
Is asking my current lender for a better rate risky?
No. A pricing request is not a credit application, so there is no credit check and no mark on your credit file. The worst outcome is that they say no. Even then, you have learned something useful about how much they value keeping you.
Can I refinance if I have missed a payment or had a hardship arrangement?
Sometimes, but timing matters. Many lenders review how you have paid all your accounts for up to two years. A hardship arrangement (a deal to pause or reduce payments for a while) in the last twelve months is a common sticking point. Older, resolved events with a clear explanation can be considered by some lenders. Eligibility applies, and this is exactly the kind of file worth checking against written policy before anything is lodged.
Does refinancing restart my thirty-year loan term?
Only if you let it. A new lender will often default to a full new term. That can lower the repayment but increase the total interest paid over the life of the loan. You can usually ask to match your remaining term instead. Or you can keep repayments at their current level, so the saving shortens the loan rather than stretching it.
I am on a fixed rate. Should I wait until it ends?
Usually, yes. Breaking a fixed rate early can trigger break costs, and they can be significant. For most people the better move is to start the review a couple of months before the fixed term expires. That way a new deal is ready before the loan rolls over to the lender's revert rate - the higher rate your loan moves to when a fixed term ends.
Want to know what staying is costing you?
Request a position check and John will review your loan, equity and file the way a lender would.
General information only, not credit advice. Your circumstances, lender criteria and responsible lending requirements apply. John Carson-Zangor is a credit representative (537545) of QED Credit Services Pty Ltd, Australian Credit Licence 387856.