Are low rate home loan deals tempting you away from your current home loan? Australian borrowers are in a great position to bargain for a better home loan rate with the competition for your business more abundant than ever. But before you jump ship, make sure you ask your current lender about establishment fees.
What are deferred establishment fees?
Deferred establishment fees, or early exit fees, are penalties enforced on a borrower who is cancelling their home loan before the agreed contract period.
Deferred establishment fees are charged as a one off fixed rate or calculated on the percentage of the total home loan balance outstanding.
Deferred establishment fees abolished
In July 2011 the Australian government abolished deferred establishment fees which meant no more customer retention guarantee for banks and lenders.
As a result of the regulation changes lenders have dumped the deferred establishment fees and opened up a new world of possibilities for borrowers.
However, if you signed up for your home loan before the regulatory changes in July 2011 the exit fees may still apply. Always check with your lender about any fees and charges you will incur when making the decision to switch.
Without the guarantee of pricey deferred establishment fees deterring borrowers from jumping ship, lenders have had to come up with a new way to keep customers loyal.
Some home loan lenders have since introduced loyalty discount programs, which offer lower interest rates, for customers who have been with them for over a certain period of time.
The number of borrowers who switched to other lenders rose after the deferred establishment fees were dropped as customers went in search for a better home loan deal.
If you think you could be getting a better home loan deal you should contact your lender to see if they have a loyalty program or could offer you a more market competitive interest rate. If they are not willing to come to the party you are free to conduct your own research and approach other lenders with more attractive home loan packages.
Regardless of whether you stay with your lender or not, shopping around can certainly do no harm. Rather than burying your head in the sand you can arm yourself with the knowledge you need to make sure you are getting the best deal. After all, a home loan is no small amount and by shopping around you could save yourself thousands upon thousands of dollars in the long term.
For example, if you have a $300,000 mortgage with a rate of 7 percent over 25 years and switch to a rate of 6.59 percent then your monthly repayments may be reduced by around $90. That’s an annual saving of $1080 and $27,000 over 25 years.