WHAT is the one thing that annoys you most about your mortgage? Is it the huge interest charges that more than double the cost of buying a home and mortgaging it for 25 years? Or the complicated and lengthy legal contract that binds you to adhere to any changes — including higher interest rates and charges — that your lender requires?
Besides these, there's another frustration that you may worry about when it comes to home loans and that's the fact you're locked into a contract for a quarter of a century with the only way out is to fork out even more cash.
But following the announcement by the Australian Securities and Investment Commission (ASIC) this month, it might be getting a little easier to change your mind and switch your mortgage to another lender.
ASIC announced a crackdown on excessive early exit fees, where some lenders charge up to tens of thousands of dollars if you wanted to cancel your home loan contract in the first couple of years and refinance with another lender. Many lenders, including some of the major banks (such as NAB and ANZ), removed their early exit fees while announcing interest rate hikes.
So if you're unhappy with the interest rates and fees or fed up with your lender's poor customer service, you can jump ships to another home loan provider if you want to be without the burden of exorbitant fees. Although, don't be surprised if you're still expected to pay several hundred dollars. And don't forget other set-up fees you will be charged for your new mortgage.
While it's great news for borrowers and a step forward for a better financial services system in Australia, it may not necessarily mean cheaper home loans overall. That's because there's a chance that lenders could increase their fees to compensate for the lost revenue from exit fees.
Despite what other analysts estimate, RateCity calculated that the major four banks earned about $79 million a year in early exit fees, which is derived from the 4.6 percent of mortgages refinanced in the first two years. The average cost for exiting a mortgage in the first two years was $1000.
With that in mind, the major four banks would only need to increase their monthly fees for every home loan by less than $4 per month to make up for the $79 million loss.
Look carefully at your contract and speak to your lender to make sure your fees and charges have not changed before switching your home loan. Early exit fees are usually in the first few years and then most lenders don't charge this fee so it might be more beneficial to wait out the early period and change your mind afterwards.
The above information is general only and does not take into account your objectives, financial situation or needs.
You can read more about ASIC's guidelines at ASIC's website.
Michelle Hutchison is Consumer Advocate at RateCity.