Exit Fee Ban – A Great Win for Homebuyers

Ban on exit fees makes it easier for Australian homeowners to switch home loans and find better deals

Australian homeowners scored a major victory on 1 July 2011, when lenders were banned from charging exit fees on variable-rate home loans. This change made it easier and more attractive for borrowers to shop around and refinance for a better deal.

Previously, exit fees were typically charged during the first four to five years of a mortgage. Their purpose was simple: discourage borrowers from switching to another lender before the original bank or lender had recouped its profit. With those fees now banned on variable-rate loans, lenders have adapted by ensuring they cover their costs upfront, often through higher set-up or establishment fees.

What to Watch Out For When Switching

If you’re considering refinancing, it’s important to compare the true cost of switching. What you save on interest could be offset by upfront or ongoing charges. Make sure to factor in:

• Loan establishment or application fees

• Ongoing account-keeping fees

• Property valuation costs required by the new lender

• Settlement or discharge fees

By looking at the full picture, you can avoid trading one cost for another and ensure the move genuinely benefits you in the long run.

Exit Fees vs. Break Fees

It’s important not to confuse exit fees with break fees on fixed-rate loans. Unlike exit fees (now banned), break fees are still very much in play. Lenders can charge significant penalties if you exit a loan during its fixed term.

Break fees are generally calculated based on:

• The interest rate you locked in versus the current market rate

• The time remaining on your fixed-rate term

• The original loan amount

These fees can run into thousands of dollars, serving as a strong deterrent for fixed-rate borrowers considering a switch.

Get Expert Guidance Before You Switch

Refinancing can be a powerful way to save money, but it’s not always straightforward. The best way to get a clear view of the costs and potential savings is to speak with a local Mortgage Broker. With professional guidance, you can be confident that if you close the door on your current loan, you’re stepping forward financially, not backward.

Disclaimer:

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