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Switching home loans? Know the rules for mortgage exit fees

Switching home loans? Know the rules for mortgage exit fees
Date of Publication: Wednesday, 03 October 2012 11:46

Homeowners with older home loan arrangements may find that they are able to avoid at least part of the exit fee demanded when they wish to change deals.

 

Early exit fees have been banned for home loans that were taken out from the beginning of July last year.

 

But many with older loans who have complained at the charges when they tried to change deals have been successful in having this reduced or cancelled.

 

Early exit fees can apply when a home loan is switched or terminated within five years of signing up. They are given a variety of names, from early repayment fees to deferred settlement fees.

 

With the regulator having prompted lenders about the factors that will compromise their exit fees should departing customers complain, it is expected that many lenders are now reviewing their fees to make them more accurately reflect the costs sustained.

 

When do consumers have grounds for appeal for their home loan exit fees?

 

  • When exit fees do not shrink over the course of the loan repayment
  • When fees are variable rather than fixed, and calculated according to the size of the loan.
  • When lenders recoup commissions paid to brokers for early termination.

 

A regulatory review found that 65% of lenders had exit fees which did not reduce during the applicability period, while 75% of lenders calculated fees according to the loan amount.

 

The regulator, ASIC, ruled that an exit fee determined by the size of the home loan advanced would be more likely to exceed the costs borne from the termination than undervalue them.

 

And with the quarter-point reduction in interest rates leaving consumers waiting to see how lenders will respond, knowledge of exit fees could be all important in determining whether it will be worthwhile to switch to a cheaper provider.

 

Bret Clement

Wednesday, 03 October 2012 11:46
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