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 mortgage options.
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. We have found it to be quite unfair in some cases. 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 mortgage with a 30 year life span, it’s not surprising that a better offer may come your way in the future.
Those home owners who have taken out a mortgage in the past 4-5 years and want to change banks there will be no bank fees to pay for exiting existing loans. Savings may range between zero and $5,000 (depending on the lender and the loan terms and conditions)
There’s a chance that some lenders may increase interest rates to compensate for the removal of the early repayment exit fees. Legislation may provide a mechanism where lenders are forced to justify all costs and therefore allow prospective buyers to make a “better” comparison between alternatives.
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.