I thought the government had banned exit fees!

cloud-confusionBy law, all mortgages funded on or after 1 July 2011 will not include early exit fees. If your home loan was set up before July 2011 then you may still have significant exit fees.

Early exit fees were also known as deferred establishment fees, early termination fees, exit administration fees and break fees. They were commonly charged if you repaid or refinanced your loan within a predetermined period (usually the first three to five years) and were typically charged on variable home loans. In many instances the size of this exit fee did not equate to the true economic cost to the lender in establishing your loan.

The legislation was introduced to encourage lending institutions to be more transparent with their fees. Establishment fees are now  charged upfront, allowing borrowers to more easily compare loan options and increasing competition between the lenders.

As a result of the legislation, some lenders have reintroduced or increased upfront application fees, however these are now more reflective of the true cost of establishing a loan.

It is important to note that exit fees are different to those fees charged by a lender (more commonly known as penalty interest) as a result of breaking a fixed interest period loan.

As your mortgage consultant, we will explain and outline the costs you may still be charged when switching loans.

When switching loans, the required fees relate to the settling of your loan, removal of your existing mortgage and the establishment of a new loan and mortgage.

These costs may include:

  • legal fees,
  • settlement charges,
  • discharge fees,
  • lender’s mortgage insurance,
  • mortgage duty,
  • mortgage registration fee,
  • mortgage discharge fee,
  • valuation fees,
  • fixed rate penalty interest, and
  • application fees.

All these fees still apply.

These fees are further explained below:

Legal Fees

These fees may relate to the cost of preparing your mortgage and loan documents or the discharge of your mortgage.

Settlement Charges

This fee is to pay for your lender to attend your settlement. It may also be charged for an internal settlement.

Discharge Fee

This administrative fee covers the lender’s cost of removing the mortgage registered on the title of your property. It is usually between $150 and $600.

Lender’s Mortgage Insurance

Normally a lender will require lender’s mortgage insurance if you are borrowing more than 80% of the value of the property.In most cases the underwriter will not transfer the insurance to a new lender and you will require a new insurance policy.

Mortgage Duty

Mortgage duty applies in some states and is dependent on the purpose of the funds, for example if the loan is to secure financing an investment property.

Mortgage Registration Fee

This is a government charge to register a mortgage on the title. The mortgage remains in place until your loan is paid out in full or refinanced to a new lender.

Mortgage Deregistration Fee

This fee is usually charged to remove the mortgage registered on the title of your property.

Valuation Fees

This fee may be charged by the new lender in assessing your new loan application.

Fixed Rate Penalty Interest

This relates to the economic loss to the lender as a result of you breaking your fixed rate interest period.

Application Fee

This relates to the cost of the lender in assessing your loan application and obtaining the necessary approvals.

These costs need to be taken into account if you are considering changing loans to take advantage of the lower interest rate environment.

Even though ‘exit fees’ no longer apply, these additional fees may outweigh the savings to be made by switching loans.  Some banks have now also introduced a ‘settlement fee’ for each loan when they are paid out. This isn’t usually more than a few hundred dollars but those fees weren’t there when banks were ‘exit fees’.

Whilst there are potentially some great financial savings to be made by changing loans, the decision needs to be well researched and considered.

Contact us on 1300 887 748 and don’t get caught by not knowing or understanding the terms, fees and charges of a new loan.  If you are currently changing or in the process of changing loans please call us urgently to ensure you have all the necessary information to determine if it is in your best financial interest.