Nervous families refinance home loans

ANGRY families are exiting home loans at a dramatic rate as they face a possible second rate hike in a month.

Nervous families refinance home loans

ANGRY families are exiting home loans at a dramatic rate as they face a possible second rate hike in a month.

The number of homeowners refinancing their loans soared by more than 10 per cent in November, the biggest rise in six years.

The new data comes as consumer group Choice yesterday said people should hunt around and avoid paying excessive exit fees.

Choice's Gordon Renouf said some lenders will absorb the cost of a customer's previous exit fee, which can be as high as $3000.

"A new lender will consider doing that,''he said.

"It is certainly worth asking. There are degrees to which this kind of thing is negotiable.''

Choice said lenders are taking advantage of the surge in activity and charging higher home loan exit fees than their overseas counterparts.

"Australian consumers pay more in home loan fees than borrowers in the UK, New Zealand and Canada,'' Mr Renouf said.

Reserve Bank of Australia data showed that banks grew their income from fees on home loans by an average 13 per cent per annum over the past decade, Choice said.

Port Macquarie homeowners Bruce and Leanne Smith, who have two children under the age of two, are now searching for another home loan because their major lender hiked variable rates last week.

"We are looking into leaving and getting onto a credit union,'' Mr Smith said.

"Leanne will have to go back to work six months earlier from maternity leave now, because things are getting tighter for us.''

But he said the bank's exit fees were holding them back.

"That is the main reason we haven't gone straight away, all the fees that are tied to our particular loan. We don't know if we'll be better off leaving or not.''

Choice said the range of fees that lenders charged were designed to lock consumers into a mortgage product for one to five years.

"Vigorous competition between lenders will only happen if consumers can switch institutions readily,'' Mr Renouf said.

He said exit fees, which included so-called deferred establishment fees, should be limited to the loss incurred by the lender.

Federal Treasurer Wayne Swan yesterday added to the pain for families, saying Treasury officials had told him inflation "will be at or above the Reserve Bank target band over the next 18 months''.

Rates may be increased as soon as February, because the RBA's inflation target band is 2 to 3 per cent.

The decision by banks to hike rates has also hurt consumer confidence.

The Westpac-Melbourne Institute consumer sentiment index for January tumbled 8.3 per cent in January. Falling consumer sentiment can hurt retail spending and may make people think twice about buying a new home.

The decline also likely reflected a 10 per cent jump in petrol prices during the past two months and a 10.1 per cent drop in share prices since the December sentiment survey.

Average exit penalties for variable home loans:
* Up to 1 Year ... $931
* 1 to 2 Years .... $881
* 2 to 3 Years .... $750
* 3 to 4 Years .... $707
* 4 to 5 Years .... $662
Source: Cannex