Exit Fees and Penalties
OUCH: DON'T GET STUNG BY HIDDEN MORTGAGE PENALTIES
Exit penalties can hurt when they sting you out of the blue as you repay your home loan early. According to RateCity you can be penalized by as much as $6,715 if you pay out a home loan after the first year and over $5,000 if you repay after three years.
The average mortgage these days is terminated in less than five years. The reasons for this are varied. With increased competition in the lending arena, many home owners simply refinance to a cheaper mortgage that suits them better. Others sell to upgrade their property. Career promotion can mean a move interstate. Changes in your financial circumstances, or making a spontaneous decision to sell in order to pocket a profit, can result in a mortgage being repaid much earlier than the contracted term.
In reality, the true cost of a loan paid out over a short term can be radically higher than you think when exit penalties are added to the total cost. A loan's exit penalties typically consist of two components: early repayment penalties and deferred establishment fees. Bear in mind that some other fees such as discharge fees can also be applicable regardless of whether you pay out earlier or not.
RateCity tracked 399 standard and basic variable home loans. Of these, 113 loans had zero exit penalties, while the most costly loan charged $7,000 to pay out early. The chart below shows the breakdown.
| Exit Penalty Range | Number of Standard and Basic Variable Loans | Average Advertised Interest Rate |
|---|---|---|
| $0 | 113 | 7.74% |
| $1 - $1000 | 140 | 7.63% |
| $1001 - $2000 | 78 | 7.60% |
| $2001 - $3000 | 38 | 7.34% |
| $3001 - $4000 | 17 | 7.47% |
| $4001 - $5000 | 11 | 7.67% |
| $5001 - $6000 | 1 | 8.07% |
| $6001 - $7000 | 1 | 6.47% |
Low interest rates often come at a cost so it is wise to consider how long you will have the mortgage for when searching for the best loan for you. RateCity is the only place in Australia where you can compare home loan features that include all exit penalties to help you choose what's right for your situation. This is especially beneficial as the Comparison Rate, or 'Real Rate' in our charts, does not have the capacity to include exit penalties. It does, however, encapsulate the advertised interest rate and ongoing fees to give you the Real Rate (or Annualised Average Percentage Rate) you will pay with each product.
The ability of the Comparison Rate to include all exit penalties to give a total and therefore true cost of borrowing is the next step the industry must take in the interest of consumers. We look forward to providing news of a positive outcome on this issue.
Avoid the sting of unexpected exit penalties by being prepared beforehand. Exit penalties are just one of the important features highlighted when you search for the best value home loan on RateCity.
Other important factors to consider are fixed and variable interest rates, redraw facilities, offset accounts, ongoing fees and many more. RateCity does your homework for you, by providing 5 star home loans developed by CANNEX, Australia's leading financial research and ratings firm. CANNEX experts have independently analysed and evaluated hundreds of features to give the full five star ratings to only the very top 5% of Australia's 2,000 home loans.
You can find the very best home loans by searching through RateCity's large warehouse of products.
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