Now that loan exit fess are banned, some investors are wondering whether they should refinance the loans on their investment properties.
Here’s what Kristy Sheppard of Mortgage Choice has to say:
Concerned about living cost hikes and possible interest rate rises, many mortgage holders believe the exit fee ban allows them to save money when refinancing into one of today’s new home loan deals.
Take note: the ban on these fees, which may be recorded on a contract as deferred establishment or early repayment fees, applies only to all new home loans taken out after 1 July 2011. Also note that some home loans already do not have them and some lenders have made the ban retrospective.
Hearing much talk about switching becoming a focus in the new financial year, Australia’s largest independently-owned mortgage broker, Mortgage Choice, asks mortgage holders to stop and think carefully before making any moves.
Company spokesperson Kristy Sheppard said, “We want to ensure consumers understand the exit fee ban applies only to new home loans taken out after 1 July, not existing loans, and there are still other switching costs and home loan aspects that must be considered.”
“Regardless of our concerns about the ban damaging competition in the mortgage market, the decision has been made. So, we’re concentrating on educating borrowers about what it means for them. Satisfaction with your home loan commitment comes after making a well informed decision. We don’t want to see anyone jump ship without a strong grasp on the pros and cons.
“Mortgage Choice has always said regular home loan health checks are a savvy way to manage your mortgage situation and ensure you are still getting a good deal. We do hope the changes encourage borrowers to explore their options, whether that results in them staying with the same loan or switching.
“If it’s the latter, know that if your current home loan has exit fees then those don’t simply disappear on 1 July. Also, there is still a range of other switching costs that you may incur, such as discharge fees, break costs and lenders mortgage insurance. Weigh up the costs and benefits against your goals.”
Further explained, the expenses involved with switching home loans may include:
- Break costs, charged when you switch or repay a fixed rate loan before the fixed term expires;
- Discharge fees, which cover the lender’s admin and other costs to terminate a credit contract;
- Lenders’ mortgage insurance, which covers the lender not the borrower. This often runs into thousands of dollars if you don’t have 20 percent or more deposit/equity to contribute;
- Exit fees, also defined as early repayment or deferred establishment fees. Check your contract.
Mortgage Choice suggests these steps when researching refinancing:
- 1. Shopping around is the best way to get a terrific deal. There is a wide range of lenders and loans out there so explore all your options to do the best thing by your mortgage situation.
- 2. Exit fees are only part of the consideration equation. Factor in all aspects of a loan, such as available features, interest rate and type, repayment category, accessibility and upfront and ongoing fees. A professional, experienced mortgage broker can help.
- 3. When deciding whether to refinance take a good look at the pros and cons. It may be cheaper to keep your existing loan rather than pay new loan costs that may include application fees, lenders mortgage insurance, registration fees, account fees, discharge fees, etc.
- 4. Before making any move, speak to your current lender about whether they can sweeten your current deal to encourage you to stay put. It’s worth a shot.
- 5. Don’t be blindsided by fancy marketing campaigns or limited special offers such as payments to switch lenders, introductory rates and loyalty discounts. Reflect on your short and long term needs when going over the costs, risks and benefits involved with refinancing your home loan.
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