Banning mortgage exit fees

It’s been six years since the Federal Government outlawed banks and lenders charging exit fees on mortgages.

The idea was to stop banks punishing everyday Australians who want a better deal on their mortgage from seeking out something that suits them better.

In 2011, then Labor Treasurer Wayne Swan introduced the regulation by giving the Australian Investments and Securities Commission (ASIC) the power to pursue banks over unfair exit fees on new and existing mortgages. ASIC also has the power to prevent banks from renaming their exit fees as some other type of charge.

Some of these exit fees could reach as high as $7,000. Refinancing was only for those who could afford it — a classic catch-22.

Even though homeowners were now free to find a home loan that suited them, “peak refinancing” didn’t hit until sometime later.

According to the Australian Bureau of Statistics, about 22,000 Australians refinanced their mortgages in December 2015 — an all-time high. A year later, the number dipped slightly to 18,000. In 2016, the total dollar value of refinanced properties was just shy of $81 million.

This is a staggering number; a number that Australian families should notice. Many Australian families don’t avail themselves of refinancing despite the obvious benefits.

These benefits vary — some new home loans might give homeowners an offset account which reduces the amount of interest they pay. They could grant homeowners lines of credit. Some opt for a fixed rate, taking advantage of record-low interest rates. The bottom line is that refinancing is there to stir up competition in the home loan market and help the consumer save money.

According to the ABS, the national average of savings derived from refinancing is $259 per month. This represents $3,108 per year. Typically, a homeowner will pay off a mortgage over 30 years. This represents an average saving of $93,240 over the lifetime of that loan.

A lack of financial education and simple information could prevent families from seeking out home loan refinance options. Re-investing the savings into an investment property, shares, or superannuation could secure one’s financial future.

With so many modern conveniences at our fingertips, refinancing a mortgage is not only cheaper than ever, it’s easier than ever.

People can look for new home loan packages using their PCs or smartphones, building up knowledge over a lunch break or commercials on TV (assuming you still watch commercial TV, of course).

Many families use refinancing as an opportunity to consolidate debts, finance a new investment property, or renovations to their current dwelling. This all builds wealth in many different ways.

However, home loan refinancing isn’t for everyone. If you have bought a home in the last six to 12 months, refinancing may not give you as much benefit as waiting a year or two when you’ve built up equity in your home. This gives you a bit more leverage with prospective lenders and means you may avoid paying Lender’s Mortgage Insurance.

Some may decide to use their knowledge to pressure their bank or lender into cutting them a fairer deal. After all, it’s their business to lose. If your current bank or lender comes to the party or even betters the other deals on offer, then you have a positive result.

If your story follows the same plot, it might be some anecdotal evidence that the Government’s plan to shake up the home loan industry with regulations on exit fees has worked.

Looking at the raw numbers, it seems to suggest that the regulation – left in place by the succeeding Coalition Government – has driven an appetite for families to refinance their properties and in doing so, secure their financial future.