powering smart financial decisions

Loyalty discount home loans

Loyalty discount home loans

Are you a loyal home loan customer? If so, you could be rewarded by your lender with lower interest rates.

Some home loan providers offer loyalty discounts as an incentive for borrowers to stay, rather than switch to another lender. These can include rate discounts to borrowers that have held the loan for a certain period of time, such as three years.

For instance, a loyalty discount mortgage may have an initial rate of 7.2 percent, but drop by 20 basis points after three years to a new rate of 7 percent, which stands for the life of loan.

In mid-2011, the number of loyalty discount home loans almost doubled compared to six months earlier as more lenders rewarded their home loan customers for not switching to another lender.

The growth in the number of loyalty discount mortgages coincided with an announcement that excessive early exit fees on variable rate mortgages would be abolished by July 2011. As a result of the legislation, lenders would have to find new ways to retain home loan customers rather than with hefty early exit fees.

Loyalty discounts already existed in the market prior to this, however in small numbers. But we’re likely to see more and more lenders offering incentives to keep their mortgage customer with loyalty discounts going forward.

That’s because they are an easy solution for lenders to help them retain customers, as opposed to penalising them with excessive fees.

Keep an eye out for

Loyalty discount mortgages can seem enticing. But it’s important to compare home loans using the comparison rate, which is the average rate over the life of the loan inclusive of ongoing fees. By doing so, you’ll be able to see the real cost of the home loan and more easily compare it others on the market.

You may find that by selecting a mortgage that has a low interest rate from the start of the loan, you’ll likely save more money in the long run than if you opt for a loyalty discount home loan.

Consider two home loans – one with a variable rate of 6.69 percent (comparison rate of 6.81 percent) and a loyalty discount mortgage with an initial rate of 7.30 percent that is discounted to 6.50 percent after five years (comparison rate of 7.09 percent).

Despite having a lower ongoing rate, the loyalty discount mortgage has a higher comparison rate than the other home loan. In dollar terms, for a $300,000 mortgage over 25 years the interest charged on the loyalty discount home loan would be around $16,000 more than if you opted for the low-interest mortgage from the start. So clearly, it pays to do the sums rather than be drawn into clever marketing campaigns.

To do your own sums use the RateCity home loan comparison tool and home loan repayment calculator. By comparing home loan products you can find a home loan that is going to save you the most money over time.

Did you find this helpful? Why not share this article?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.


Learn more about home loans

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*