Borrowers warned about clawback fees when refinancing

HARDLY anyone has heard of them, but they are four-figure fees that home loan borrowers can be stung with, just for trying to be diligent.

THEY are the four figure fees that can sting diligent home loan borrowers, but the majority of us have no idea what “clawbacks” are, research has revealed.

Banks charge mortgage brokers a clawback fee in order to recoup the commission they pay them if a borrower refinances with another lender too soon- usually in the first two years of a mortgage. In rare instances, brokers have been known to pass the cost of the lost commission onto their clients.

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The CoreData survey of 1500 mortgage holders, commissioned by uno Home Loans, found 81 per cent of respondents were not aware that clawback fees existed. When made aware of the clause, 79 per cent said they would be put off choosing a broker that charged clawbacks.

Most brokers don’t charge clawbacks, but it is important to know if they do before signing up, said uno Home Loans founder Vincent Turner.

“The ones that do it have to disclose it, but if you’re not diligent you might miss it in the fine print,” Mr Turner said.

When borrowers engage a mortgage broker, the broker will draw up a credit proposal, which outlines the terms of the agreement and discloses their commission and how they are paid.

“If there’s a clawback, it will be in the credit proposal and the broker will get you to sign the document,” Mr Turner said. “The best thing to do is to know what they are and ask the broker if you’re not sure … If a broker wants you to sign a clawback, you should be able to say no, because someone else will be able to get you the same deal.”

Details about any clawback fees will be in the credit proposal.

Mr Turner estimates around one in 20 mortgage brokers pass on clawback fees, but even this small number is news to Australian Finance Group CEO David Bailey, who has not encountered it in 14 years in the industry.

“If it is happening, I’d be disappointed,” he said. “There’s an expectation that a customer might change their mind. A broker looks to create a good experience. If a customer has a bad experience, the broker gets punished.”

Mortgage Choice brokers never charges customers clawback fees, confirmed CEO Susan Mitchell.

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“The customer needs to be free to make the right decisions about their home loan and their circumstances may require them to switch loans within the clawback period,” Ms Mitchell said. “If that’s the case, our brokers will assist them to do so because they want to do the right thing by the customer … if they do so, the customer will come back to them when they are looking for a better deal.”

Originally published as Borrowers warned about clawback fees when refinancing