ASIC Ban on Mortgage Exit Fees- Is Refinancing Worth It?
From 1st July, Banks and other mortgage lenders will be banned from charging homeowners with mortgage exit fees under new reforms that will strip more than $80 million from industry coffers.
Up to a third of mortgage holders would consider switching lenders if exit fees are relaxed, according to PRD Nationwide.
A recent poll conducted by the real estate agency found 36% of 2000 peopls surveyed wanted to change lenders, and a further 17% were undecided. Meanwhile, 47% were not planning to switch in any case.
PRDnationwide research director Aaron Maskrey said in a statement that record numbers of borrowers are looking to refinance as a result of recent publicity surrounding the Federal Government’s proposed banking reforms.
“It’s a great time for home owners to see if they can secure themselves a better deal,” Maskrey said. “In some cases property owners can save hundreds of dollars per month by shopping around for a new lender.”
Maskrey said with more interest rate hikes expected over the next 12 months, it was “crunch time” for many home buyers who were struggling to meet mortgage repayments.
Also, a recent survey released by mortgage insurer QBE LMI of 1000 mortgage industry professionals found annecdotal evidence of a rising obsession among consumers with headline interest rates, rather than an understanding of the whole package they are getting with their home loan.
So how can you be sure they’re doing the right thing when refinancing? We’ve compiled what we think should be the defining factors when considering switching lenders.
Will you have to pay Mortgage Insurance (again)?
When borrowing more than 80% of your properties value (LVR) Mortgage Insurance is required. This can add thousands back onto your loan as it is not transferable from one institution to the other. Expect to pay around 1.5% on top of the new loan.
Valuation Fess & Mortgage Documentation
Each security or property to be refinanced will require a valuation to be undertaken by the new lender. These can cost upwards of $400.00 per security in some cases. Most lenders charge you for this. Add to this your mortgage documents, lenders discharge fee and maybe title insurance you can expect to pay another $1000.00 on top of the amount borrowed
Are you refinancing a Fixed Rate home loan?
This is where things can get tricky- If you are already on a fixed rate product, breaking these can be very expensive indeed and to help explain I’ve attached our definition below-
When a bank funds a fixed rate loan they borrow money from various wholesale money markets. Their interest rate is locked in at the same time as yours. However they do not have the option to repay their loan early, so when you repay yours they have to lend the money to someone else but may still be paying a high rate on their loan.
If the cost of borrowing money on the wholesale market has fallen between when you fixed your rate and when you pay off your loan then the bank has an “economic cost” to carry until their loan is ready to be repaid. They then pass this cost on to you in the form of break fees. The exact amount of of the fee can be obtained by asking your lender.
Other things to consider are your existing lenders service- are you satisfied and will you be happy without a designated customer care representative? As you can see it’s not as clear cut as ASIC and the government would have liked so make sure you read the fine print as a cheaper rate normally isn’t once you consider the above.
