Exit fee myths laid bare
THE proposed changes to the way banks operate have created a lot of media attention but unfortunately it is not possible to simply ban all exit fees.
Basically these so called “exit fees” fall into three separate categories - first are the fees for breaking a fixed rate loan, which can be over $50,000 in some cases, depending on the size of the loan and the rate that was locked in.
These are not going to change.
Then there are “exit fees” which are, in reality, deferred application fees.
Banks will sometimes offer to waive application fees, and even provide a cheaper interest rate, if the borrower contracts to stay with that bank for a three or four year period to enable the bank to recover these costs.
If these are abolished new borrowers will be faced with higher upfront fees and possibly higher ongoing interest.
Finally, there are mortgage discharge fees which the banks claim are their costs for finalising a normal mortgage when the borrowers have paid it out, or have taken the loan elsewhere.
These are currently around $700.
ANZ has already flagged its intention to reduce them but, let’s face it, $700 is small bikkies in the scheme of things.
Remember, the interest on a 30 year loan of $300,000 could be over $450,000.
The secret is to become an informed consumer and, thanks to the internet, there is now a wealth of information available for anyone who is concerned about the interest rate they are being charged.
At www.ratecity.com.au there are hundreds of loan products on display and there is even a ratings system which even includes “Today’s Best Buys”.
At date of writing there were variable rate loans as low as 6.74% and three year fixed rates at 7.14%.
Even though these loans may not be appropriate for you, who knows what may be hiding in the fine print, they are certainly a great starting point for further investigation, and possibly a robust discussion with your present lender.
This is my last column for the year so please let me take the opportunity to wish you all a happy Christmas and healthy and prosperous 2011.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org.