By law, all mortgages funded on or after 1 July 2011 will not include early exit fees. If your home loan was set up before July 2011 then you may still have significant exit fees. Early exit fees were also known as deferred establishment fees, early termination fees, exit administration fees and break fees. They were commonly charged if you repaid or refinanced your loan within a predetermined period (usually the first three to five years) and were typically charged on variable home loans. In many instances the size of this exit fee did not equate to the true economic cost to the lender in establishing your loan.

The legislation was introduced to encourage lending institutions to be more transparent with their fees. Established fees are now being charged upfront allowing borrowers to more easily compare loan options increasing competition between the lenders.

As a result of the legislation, some lenders have reintroduced or increased upfront application fees, however these are now more reflective of the true cost of establishing a loan. It is important to note that exit fees are different to those fees charged by a lender (more commonly known as penalty interest) as a result of breaking a fixed interest period loan. As your mortgage consultant, we will explain and outline the costs you may still be charged when switching loans. When switching loans, the required fees relate to the settling of your loan, removal of your existing mortgage and the establishment of a new loan and mortgage.

These costs may include:

• legal fees,

• settlement charges,

• discharge fees,

• lender’s mortgage insurance,

• mortgage duty,

• mortgage registration fee,

• mortgage discharge fee,

• valuation fees,

• fixed rate penalty interest, and

• application fees.

All these fees still apply.

These fees are further explained below:

Legal fees These fees may relate to the cost of preparing your mortgage and loan documents or the discharge of your mortgage. Settlement charges This fee is to pay for your lender to attend your settlement. It may also be charged for an internal settlement. Discharge fee This administrative fee covers the lender’s cost of removing the mortgage registered on the title of your property. It is usually between $150 and $600. Lender’s mortgage insurance Normally a lender will require lender’s mortgage insurance if you are borrowing more than 80% of the value of the property. In most cases the underwriter will not transfer the insurance to a new lender and you will require a new insurance policy.

Mortgage duty Mortgage duty applies in some states and is dependent on the purpose of the funds, for example if the loan is to secure financing an investment property. Mortgage registration fee This is a government charge to register a mortgage on the title. The mortgage remains in place until your loan is paid out in full or refinanced to a new lender. Mortgage deregistration fee This fee is usually charged to remove the mortgage registered on the title of your property.

Valuation fees This fee may be charged by the new lender in assessing your new loan application. Fixed rate penalty interest This relates to the economic loss to the lender as a result of you breaking your fixed rate interest period. Application fee This relates to the cost of the lender in assessing your loan application and obtaining the necessary approvals. These costs need to be taken into account if you are considering changing loans to take advantage of the lower interest rate environment. Even though ‘exit fees’ no longer apply, these additional fees may outweigh the savings to be made by switching loans.

Whilst there are potentially some great financial savings to be made by changing loans, the decision needs to be well researched and considered.

*Disclaimer: This article is generic in nature. All investment decisions should be considered wisely and based on your personal and fi nancial circumstances. Seek proper advice before committing to any course of investment action. This is not deemed as advice.