Elimination Of Mortgage Exit Fees

Elimination of Mortgage Exit Fees

by

Georgia Malson

There is a lot of advice out there about how to make repayments of a home loan more quickly. One of the most common tips is for homeowners to consider refinancing the loan when the interest rates drop. That can be very beneficial to reducing the overall amount of interest due on a variable rate home loan. However, many lenders charge exorbitant exit fees when an homeowners wants to terminate the loan. So often times, refinancing or looking to another lender for a better rate, is not a feasible option. The costs of the mortgage exit fees were greater then the savings the homeowners would get from refinancing the home loan. In essence homeowners were trapped in their current rate loans. Beginning in July of 2011, that will change.

Goal of Banning Fee

A new government regulation that goes into effect as of July 1st will ban banks from charging mortgage exit fees. The government wants to make it easier for home borrowers to shop around for better deals, even if they already have a loan. Mortgage loan exit fees were often as high as $7000 which the government just feels is too high for Australian families. The feeling was clear that homeowners were almost being bullied by their lenders to stay, by being charged this excessive fee.

Increased Competition

With the new regulations going in to place, Australia’s government hopes to see a boost in competition, particularly among the big four banks including Westpac, Commonwealth Bank, NAB, and ANZ. They want to see home borrowers be able to get better rates and not be penalized for finding one at a different lending institution. But the hope is that borrows won’t have to look else where because competition will keep rates similar at all of the major banks.

Variable Interest Loans Only

The new regulation, starting July 1st, will only cover variable interest loans. This has some potential home buyers concerned that banks will begin limiting variable loan options and will heavily promote the fixed rate loan. However, under the new plan, finance regulators will be able to pursue banks over unfair exit fees on new and existing loans. Banks are also banned from trying to disguise the fee by repackaging it as something else within the home loan.

Existing Home Loans

Unfortunately the new regulations will not apply to existing home loans. Only home loans originated on or after July 1st will be included. However with the ability of the finance regulators to pursue the banks for unfair practices, they hope to see banks voluntarily eliminate the exit fees on all home loans. Currently two of the big banks have already done so.

Assistance

The National Australian Bank has offered to pay loan exit fees for home owners who wish to switch from one of the two banks who are still charging loan exit fees to one of the banks who are not. This is sending a strong message to the banks that it would be in their best interest to eliminate the fees all together.

Australians should see this step as a positive one to helping potential home owners and existing home owners get the best value in their home loan. By eliminating the mortgage exit fees, borrowers can shop around and find the rates and services that work best for them, without the fear of being charged exorbitant fees for terminating their current mortgage home loan.

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