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!