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Long-term home loan customers paying ever-high ‘loyalty tax’

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Long-term home loan customers paying ever-high ‘loyalty tax’

You might not realise that lenders often charge lower interest rates to new borrowers compared to existing customers.

Over the past year, as the graph from the Reserve Bank of Australia shows, this gap has widened.

Back in October 2020, owner-occupiers who took out new variable loans were charged, on average, 0.32 percentage points less than existing borrowers. By October 2021, this gap had grown to 0.37 percentage points.

If the RBA increases the cash rate next year, as many economists predict, it will be interesting to see if this gap widens or narrows as lenders bid to undercut their rivals and grab more market share.

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