HomeSource emphasise on reviewing home loan exit fees
Following Reserve Bank’s decision to cut interest rates, homeowner advisory and assistance service, HomeSource , are reminding homeowners and those thinking about buying a new home to review home loan exit fees before making a change or committing to a new loan.
“We welcome the Reserve Bank’s decision to drop interest rates by 0.25 per cent,” commented HomeSource Managing Director, Pia Vogel.
“As the first rate cut since 2001, it will certainly have many mortgage holders considering their options and keenly watching which banks lower their rates, to make the most of it. But when it comes to mortgages, rates aren’t the only factor that needs to be taken into account.”
“It’s common practice for homeowners to change their loan provider multiple times during the life of a mortgage. To combat this churn, providers charge fees to borrowers who opt to leave their current loan,” said Pia Vogel.
These fees known as exit fees, early termination fees, settlement fees, or loan termination fees are now found on most home loans and are usually charged when a loan is cancelled within the first 5 years.
“Considering the average Australian home loan is claimed to last less than 2 years, these fees present a significant revenue stream for providers and a major burden for Australian mums and dads,” Pia Vogel said.
“To exit a loan from one of the big banks in its first 3 years, the average homeowner is looking at a stinging $1153 fee. And it’s typically even more expensive for loans from smaller banks and non-bank institutions.”
“While the Federal Government has indicated that it will look into these refinancing barriers, until something is done, its buyer beware.”
There has been a shift in the way loans are marketed. Years ago, the majority of loans had upfront charges, but now, borrowers are paying upfront fees on only about 40% of them. This reduction in upfront fees has been offset with exit fees, which feature in almost all current loans.
“Home owners need to be increasingly diligent when selecting their loan,” said Pia Vogel. “External economic factors, such as the latest change in interest rates and share market volatility, may force consumers to refinance their loan during the period in which the fees are charged.”
“Before committing to a loan, consumers need to look at all of the costs and charges from the loan’s start to finish. Exit fees must be taken into account.”
“Unfortunately, since these fees do not come under the loan comparison rate, it can be difficult to calculate the best option upfront and so home owners should always seek professional advice.”
“If you are considering a new loan or refinancing, consult an independent financial advisor and make sure you fully understand all of the potential costs of refinancing,” said Pia Vogel.
2-Sep-2008