Exit fee warning as homeowners switch

HOMEOWNERS should watch out for a rising number of exit fees if they try to refinance their mortgages.

Homeowners are being warned to watch out for exit fees when switching loans / File

The cost of refinancing your home loan is on the rise, writes Anthony Keane

Homeowners are being warned to watch out for a rising number of exit fees if they try to refinance their mortgages.

Smartline Personal Mortgage Advisers says that with an estimated 30-40 per cent of home loan applications made by people looking to refinance, major lenders have been introducing exit fees in recent years to discourage people from refinancing.

The company says the exit charges can range from a flat fee of $750 to $1000 or a percentage of the loan balance, up to 2.5 per cent with some lenders which could cost more than $6000 for a typical mortgage of about $300,000.

These fees are separate to fixed loan break fees payable when borrowers try to switch to a variable rate home loan.

Those break costs can run into tens of thousands of dollars, depending on fixed loan terms and interest rates.

Smartline managing director Chris Acret says exit fees generally apply in the first five years of a home loan.

"If you look back five years or more ago, banks rarely charged exit fees," Acret says.

"These days, there are very few lenders out there who do not charge these fees.

"It's really about forcing the customer to stay with them for as long as possible.

"A home loan doesn't really make much profit for a bank for the first two years.

"Those first couple of years are just break even. With the average loan term now about three-and-a-half years, banks only have a window of about one-and-a-half years to make a profit from that loan."

Exit fees are often called early termination fees, and can also be known as deferred administration fees, deferred establishment fees and early repayment fees.

People refinancing can also be hit with discharge fees and stamp duty on new loans.

Acret says homebuyers should always think carefully about their future plans when taking out a mortgage.

"If there is a real chance you may look to exit out of the loan within a few years as a result of either selling or refinancing, it may be worthwhile considering the issue of exit fees a little more," he says.

"Home loans with a slightly higher interest rate often have lower or no exit fees, so may actually end up being a cheaper option if you are looking to repay early."