How to avoid extra home loan fees

Agent advises the couple, signing documents

Exit and early termination fees can put the brakes on plans to sell, to refinance, and to renovate or purchase  an investment property. Here’s how to avoid them from the start.

Fees charged for the early repayment of variable-rate loans were phased out by government reforms in 2011. However, fixed-rate loans may still carry these fees, and both fixed-rate and variable-rate home loans taken before the reforms may still impose penalties for early repayments. Those pre-reform loans may now still be running.  Therefore it’s very important to check with the lender if any of these fees apply to you before refinancing your loan.  This should be as easy as making a phone call.  After making the call, expect another follow up call from the banks “customer retention team” (the team that try’s to keep your business after you decide to switch to a better home loan).

“In most instances, for most lenders, fixed-term loans had a term of five years,” Advantedge Lending General Manager Brett Halliwell explains. “That will be the case for most borrowers pre-2011.”

If you took out a loan before 2011 and have decided to sell, it can be difficult avoiding early termination fees for fixed-rate loans, as they protect your lender against the loss of the interest they reasonably expected to earn on your finance.

You are able to receive a waiver or fee reduction, although you rely on the discretion of your lender to receive one. Having a good repayment history and being a long-term customer helps.

“Different lenders will have different policies in relation to early repayment. Fees can be waived upon request but some lenders prefer to charge them,” Halliwell says.

To avoid early repayment fees in future, it is a good idea to take extra precaution when deciding to take a fixed-term home loan.  This is where an in depth conversation with a strategy focused mortgage broker will reap it’s rewards and why strategy is so important.  As opposed to just looking at the underlying interest rate.

Fees on fixed-rate loans may include exit fees and early termination fees. Exit fees can range from $150 to $350. Early termination fees can be more costly and are charged against fixed-rate loans that are exited before the fixed-rate term is complete. They can be charged in a number of situations, including switching home loans or making extra repayments on your loan.

“The key thing to consider is whether to go for a variable option or a fixed-rate option. If you do take a fixed-rate mortgage, you will effectively be locking in the fixed-rate term, and the fixed-rate interest periods for whatever the term is,” Halliwell explains.

“That means that it’s not an appropriate product for someone who wants to pay out their loan early.”

Consider your future goals. Do you have plans to move city or change your job? Are there any foreseeable disruptions to your financial circumstance likely to take place during the space of your fixed-term rate?

Avoiding exit fees on homes loans ultimately comes down to understanding the products you are able to choose from and being clear about what you are signing up for.

“I would also recommend customers get some help when they are seeking out their loan. We certainly recommend that brokers provide really good services for customers in that regard,” Halliwelll says.

To avoid being caught out by fees and charges, speak with me about different types of loans and I’ll match one to your plans for the future.

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