The latest marketing campaigns and the political spotlight on banking competition has sparked a second wave of new promotions. Incentives for borrowers such as lenders paying exit fees on business loans and home loans are being offered to customers who switch from a major rival.
As tempting as these offers are, borrowers are being warned that despite the attractive promotions and new regulations coming out this year, their focus should still remain on underlying interest rates.
It has been found that most early exit fees are a very small proportion of the 25-year cost of a home loan, with the average cost of an early exit fee with a fixed fee for breaking the contract during the first two years being $862.
The Federal Government has plans to outlaw excessive early exit fees on variable rate mortgages taken out from 1 July, 2011, though this change won’t include existing home loans, fixed rate mortgages of discharge fees.
The draft regulation defines a discharge fee as: “A fee or charge that only reimburses the credit provider for the reasonable administrative cost of terminating the credit contract.” Or “The fee charged to release a property title from a lender’s name.”
Whilst the draft regulation does not determine what a reasonable discharge fee is, it is vital that the question of ‘reasonable discharge fees’ be clarified before the new laws take effect. Until then, lender can choose what they will charge and potentially pass on the loss of exit fee revenue onto discharge fees.
Borrowers are being urged to remember that it is the interest rates that matter during the term of your home loan and not to become obsessed by the apparent exit fee war.