Mortgage exit fees banned, but is the money saved like gold?

Without getting involved into related issues that are more political than practical, though announced what seems like an eternity ago, as from 1 July 2011, exit fees are banned on new Australian home loan mortgages.  

Some important provisos apply here.  Firstly, the ban only applies to new mortgages, although some deals have emerged: some lenders have removed such fees on existing loans, others are offering to pay exit fees payable to your current lender if you switch your home loan to the new lender.

But… (there’s nearly always a “but”!)

There are other fees that continue to apply, which borrowers still have to be aware of – these don’t form part of the banned exit fees.  Two main ones include:

• “Break Costs”.  These usually apply when fixed rate loans for a fixed term is paid off before that term expires – more here on fixed rates and break costs
• Early repayment penalties and fees – more often called “deferred application fee”, “deferred establishment fee” or similar.  Many lenders attract customers with claims of no application fees or no fees upfront.  The loan agreement then provides that if you don’t pay off your loan for, say, at least 4 years, that fee is waived. Amounts vary, they can be as high as $4,000.00 or more, or even equivalent to 3 months’ interest! Remember, most homeowners “pay off” their mortgages each time they sell and purchase, and many times this happens within this time frame.

A sort of alternative twist of the old saying: Beware! all that glistens is not always gold!

Franchisor in trouble again! Or, why you should speak to as many franchisees as you can before buying into one!

Why are they still at it?  Last Tuesday, the Federal Court fined Australian franchisor Allfones $45,000 after finding it guilty of contempt of court by reason of its breach of an undertaking given to the Court in 2008.  Here's the Court's judgment.  Here's the ACCC's press release.

I've previously noted aspects of this saga here and here.

Eventually, and as a consequence, the company's chief executive's contract was terminated and he was escorted out of the company's headquarters, as reported here, earlier this year.

What does it take to send the message once and for all?  If fines totaling $3 million hasn't done it, will a $45,000 fine do?

Back to to the present case, the judge said 3 contempts were serious, and that the conduct engaged in by Allfones' senior personnel, contrary to the undertakings, was deliberate!

With this history, I wonder why would one want to be their franchisee?

I almost always advise prospective new franchisees, as part of their assessment of an intended purchase, to speak to as many as possible of current and past franchisees of the franchise system they're contemplating - the feedback they get is often more telling about the system and support, than the documents and sales spin.