Home loans with loyalty discounts

It can pay to be a loyal customer in today’s home loan market. Find out how you can benefit from a home loan with a loyalty discount.


In order to get customers to stay with them, banks use various incentives to reward borrowers and prevent them from moving to other lenders. The need for such incentives has intensified since 2011, when new laws passed by the Australian government banned exit fees imposed on home loans to prevent mortgage switching. Banks are now offering home loans with loyalty discounts to ensure that you stay with them. Discounts on such loans may include reductions in interest rates and the waiving of some fees.

Loyalty discounts are usually given to customers who have been paying off their loans for a specified period of time, for example three years or more.

What is a home loan with a loyalty discount?

Home loans with loyalty discounts are designed to encourage a customer to keep their current loan rather than to switch to get better terms from other lenders. These loans can either have a fixed rate or variable rate, and they offer reduced interest rates for the remainder of the loan term.

If you’re a loyal customer, you could be rewarded by your bank by getting a significant discount on your home loan once you commit to your loan for a certain period of time. Some banks will lower the interest rate on your current mortgage after three years or so in order to give you an incentive to stick with your loan.

How do these home loans work?

High interest rates on home loans are piling the pressure on home buyers, forcing them to look for cheaper home financing. This has led to banks coming up with innovative ways to remain competitive so as to retain their loyal customers. If your current fixed or variable home loan is no longer competitive, you have the option of reviewing it to find out if you could be getting a better deal from another lender.

Home loans with loyalty discounts work by offering an upfront fixed or variable rate that later reduces after a certain period. For instance, a loyalty home loan deal could have a starting interest rate of 5.20% for the first five years, which later drops to 5% for the remaining life of the loan. This kind of deal could entice you to commit to your loan for longer so as to benefit from the loyalty discount.

What are the types of mortgages available?

Loyalty home loan deals come in different forms and offer different discounts, reward packages and fee waivers. Here are the types of home loans with loyalty discounts available to customers in Australia today:

  • Fixed rate loans with loyalty discounts.These loans come with a fixed interest rate which does not fluctuate with changes in the market. With these loans, banks will reduce the fixed rate to a lower amount should you commit to the loan for a substantial period which they specify on the loan application. These loans may have a higher ongoing rate at the start of the loan term but can be reduced if you commit to the loan and are loyal to your current lender.
  • Variable rate home loans with loyalty discounts. Variable home loans have a fluctuating interest rate that’s influenced by the market. With a loyalty deal attached to it, such a loan will give you a better ongoing rate, though the comparison rate may be higher than it is on a variable rate loan with no loyalty discounts. This is why it’s important to read the terms and crunch the numbers on a home loan with loyalty discounts, allowing you to see if the waived fees and loyalty rate drop will merit your loan application.
  • Packaged discount loyalty home loans. Some banks offer to reduce the standard rate on a mortgage if you bundle it with a transaction account or credit card. The loyalty discount on a packaged loan may also include reduced account-keeping fees and waived establishment fees depending on the product you choose. You can also get discounts on credit cards, insurance and personal loans.

How to compare mortgages that reward loyalty

Comparing different home loans with loyalty discounts is the best way to find the right loan for you in the market. There are certain features that will help you figure out the loan to take up and the real cost of the loan over its lifespan. Here are some of those key features you should always factor in when comparing loyalty deals on your home loan:

  • Loyalty rewards. Obviously if you want a home loan which will reward your continued loyalty, you’ll want to compare the loyalty discounts on offer. Different lenders will offer varying rewards to loyal mortgage holders. Most will lower interest rates, while others will go an extra mile to waive establishment and break fees. Remember to look at how long you need to stay with that lender to get the incentives, and compare the duration with other deals.
  • Interest rate. In order to end up with a good deal on a home loan with loyalty discounts, you must also look at the interest rates you are charged before the loyalty discount period. Some loans may have high interest rates and even though these rates will be scheduled to drop after a certain period, the overall cost may be comparatively higher than other low interest loans.
  • Comparison rate. This is the average interest rate you will pay on your loan over its entire term with fees taken into account. Although some home loans with loyalty discounts may have what seem to be lucrative loyalty discounts, it’s important to crunch the numbers on the amount you pay before the discount kicks in and get the average rate to see if it is high compared to other similar products.
  • Loan fees. Discounted interest rates on a home loan can be very enticing, but be sure to look at the fees charged on the loan over its entire term. Such fees may include establishment fees, stamp duty fees, account-keeping fees and more. Go for the home loan with comparatively lower fees. Higher fees could render any discounted interest rates useless.

  • Pros

  • Rewards for loyalty. Home loans with loyalty discounts reward customers for committing to their loans and staying with a certain lender. With most of these loans, you get more rewards the longer you stick with your loan. Discounts on standard interest rates are there to be enjoyed with each year you do not refinance your current loan elsewhere.
  • Waived fees. Such loans will often offer you waived establishment fees and lowered account-keeping fees so as to lure you to apply for them. This, coupled with lowered interest rates after a while, can save you money. Waived one-off fees are also great since they reduce the overall cost of the mortgage.
  • Package deals. Loyal mortgage holders may be given improved package deals on their loans after a certain period, including an offset account, free redraws and extra repayments.
  • Cons

  • High starting rate. Such loans can have a high starting interest rate.
  • Might be better value to find a home loan with a low rate already. Ensure that your loan will give you good value before the loyalty bonus kicks in, otherwise you may lose out in the long run.

Things to be aware of with these home loans

The most important thing to avoid with home loans which give incentives for loyalty is looking at the discount offered alone without factoring in the cost of ongoing fees. Customers must also consider the entire package they are getting, including quality service, loan features and repayment options, because the loyalty discount alone may not be enough to hold them there. Failing to read the terms and conditions attached to getting the discount on a home loan can also be detrimental, as you would most probably miss important details such as the headline interest rate on the loan.

It’s important to note that you shouldn’t disregard the option of refinancing, even if you’re getting a discount on your home loan. There could still be better deals out there, despite the fact that you’re getting a discount on your rate.

Frequently asked questions

Why should I go for such a loan?

Other than enjoying a loyalty interest rate drop on your loan after a specified period, you may also get perks such as a credit line, unlimited additional repayments and an offset account option.

What should I look for in a home loan with a loyalty discount?

The features you should go for will be determined by your own financial needs. For instance, if you are motivated by lower fees and great customer service, discount loyalty rewards on their own may not merit you taking up such a loan.

Marc Terrano

Marc Terrano is a Lead Publisher at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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