Mortgage Exit Fees


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We've seen it time and again -- some of our biggest companies retrenching hundreds of workers, in an instant their lives turned upside down.

Father of nine, John Coombes knows that feeling and knows the fallout.  The computer analyst has been unable to find work since he lost his job four years ago.   “During this period that we were going through we were making payments on the house, but we were slowly falling behind all the time”, John said.

Even a repayment ‘holiday’ wasn’t enough, John and his wife making the heartbreaking decision to sell the family home and pay out their $253,000 home loan.

Hopeful of having some money left over after settlement, to John’s horror the mortgage break costs amounted to more than $16,000.  “It’s unbelievable”, he said.

Like so many borrowers seeking to protect themselves against the possibility of rising interest rates, John had fixed his loan for seven years and when he tried to escape the mortgage he could no longer afford he found out the huge cost of breaking a fixed interest loan -- costs that are only revealed at settlement.  “It is unjustifiable enrichment, it doesn’t allow me to make the choice to pay off the mortgage”, John said.

Exit fees on variable loans can also cost thousands wiping out any savings borrowers could make by switching loans.   While credit unions charge as little as $250 to exit a home loan early before the Federal Government stepped in, the big banks we’re stinging customers around $1000, with some other non-bank lenders charging up to almost $5000 in exit costs.   “Banks cannot justify it in my opinion.  They just make so much money with all fees and charges, this type of fee I think it’
s outrageous”, John said.

Public fury saw the Gillard Government outlaw mortgage exit fees but after all the hype, how much did customers actually save?  Mortgage broker Ashley Arrowsmith from Mortgage Choice says, “As you can see for this part product here the early exit fee applicable before July 1 2011 was $700.  Now that’s been abolished, the $350 discharge fee is still applicable which was applicable before July 1 as well so the customer's really only saving $700”, Ashley said.

And there’s a catch.  “A lot of customers didn’t realise that the exit fees were only abolished for new loans that were written after July 1 and if they were only in their loan for a couple of years after that then the exit fees still would have applied”, Ashley said.
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Those new laws are doing nothing for those on fixed interest mortgages.  “Divorce, death in the family, anything unforseen can definitely make those fees apply if you’re breaking your fixed rate”, he said.

Put simply the bigger the loan, the more time remaining on your fixed rate contract - the bigger the break charge.  Anne Quessy was left reeling after she broke up with her partner and sold two properties.  “Those break costs at the time of settlement were round about $74,000”, Anne said.

Karen Maskell, forced to sell up after a bitter divorce, was financially ruined after being slugged $80,000 in mortgage break costs.  “I think I cried for a few days because its everything I've worked for since I got my first house at 21, so it is everything I've worked for since I was 21”, Karen said.

“I just can’t believe that a company that makes $6 billion a year profit would want to consider taking that amount of money off someone like myself”, John said.

An ANZ spokeswoman told us its limited what it can say about Mr Coombes’ case, but when he sold his house he wasn’t in the bank's formal hardship program and it will contact Mr Coombes directly to see what arrangements can be made.