RateCity looks into the Australian Securities and Investment Commission’s planned crackdown on early exit fees for mortgages and what this new proposal means for you.
July 5, 2010
If you are considering which home loan to choose and are worried about being locked in for many years because you don’t want to pay the excessive exit fees, well you no longer need to stress so hard.
ASIC recently released a consultation paper proposing changes to the laws regarding excessive early exit fees and the commission’s expectations under the National Credit Code.
Under the proposal, borrowers can take action against lenders if they charge exit fees that are regarded as “unconscionable or unfair”. ASIC is seeking input from experts and the public until August 9, 2010 and will release a regulatory guide of the changes by late October.
What are exit fees?
Mortgage early exit fees are payable when a borrower repays their mortgage early or before the term ends. It may include deferred establishment fees and early exit fees can be charged for both fixed and variable rate mortgages.
How much mortgage lenders charge in exit fees for mortgages taken out before July 1, 2010, will depend on how long borrowers have had their mortgage for and how much money is left owing when they decide to exit. RateCity calculated the following:
- To exit a mortgage during the first year, the average cost for exiting is $1674.
- In the second year it can cost $1300 on average.
- Exiting in the third year incurs around $1200 worth of exit fees.
- By the fourth year borrowers pay approximately $760 to exit.
- To switch from one home loan to a basic variable mortgage within the same institution invites an average fee of $340 and can be as much as $1000.
What does this mean for you?
High exit fees can discourage borrowers to switch their home loans and therefore make the mortgage market less competitive. However these new regulations may result in reduced fees and may increase more competition for better value deals.
“There is a lot of money to be potentially saved by Smith said, “you can still save significantly by doing the sums and getting your timing right.”
If you are thinking of making the switch, here are some tips on what to consider:
- Make sure that you do your calculations and work out if switching is the best option for you. You need to take into account exit fees as well as establishment fees for the new loan.
- Some lenders may charge other fees as a result of the crackdown so ask your lender for a list of all fees linked with exiting your loan
- If you are currently in your second or third year, work out if you are better off waiting a couple of years to exit your loan as it may work out cheaper.
- Compare home loans online to find a home loan with lower interest rate than what you may be currently paying.