In a package announced last week which included a variety of different
banking reforms, the Treasurer Wayne Swan revealed the Government’s proposal to
abolish home loan exit fees. This package in its entirety was put
together to afford Australian consumers greater flexibility and choice when it
comes to their banking.
Under the reforms proposed by the Treasurer, home loan exit fees will be
abolished on all mortgages taken out from July 1, 2011.
In many ways, the package will be a win for consumers. I have found it
to be quite unfair that after working so hard and for so long (many people pay
off their mortgages over a period of more than twenty years), consumers should
be hit with often significant administration charges for ending their mortgage
In other cases, the existence of exit fees also means that people cannot
take advantage of better deals that are released onto the market. When
you enter a contract that lasts for such an extended period as is the case with
a mortgage, it is not surprising that improved offers become
Essentially, the abolition of home loan exit fees should give consumers more
freedom to move between mortgage options as lending conditions change over the
life of a loan. In turn, this could go some way in forcing greater
competition in the banking sector.
And while consumers should benefit from this increased competition, I would
say that it will also be prudent for borrowers to remain vigilant when
comparing mortgage products after July 1 next year. Unless extra
legislation is introduced to prevent banks from bringing in different charges,
the reality may be that consumers are faced with a variety of new costs when it
comes to searching for the best mortgage deal.
I’m not saying that these costs will outweigh the benefits of the abolished
exit fees, but it may be the case that the basis for the comparison of
different mortgage options will change. Consumers need to understand that
banks could decide to implement other charges in order to make up for the lost
exit fee income.
In any case, increased competition within the banking sector is a good thing
as it should help to make it somewhat easier for people to obtain better
financing for home purchases. And the cutting of exit fees does have the
potential to save Australian borrowers substantially. I would just
encourage consumers to remain abreast of the issues and take advantage of the
opportunities to save on costs that the reforms will provide.