 Costly exit fees on home loans
Costly exit fees hang like a dark, stormy cloud over home owners who are wanting to switch home loans. Thousands of borrowers fixed their interest rate in March, as the RBA raised rates for the 12th time since 2002. Fearing more increases, these home owners fixed the rate for a set term, usually one year to five years.
Now, these borrowers are likely to be enviously looking at the cheaper loans available, following three consecutive RBA rate cuts, and falling home loan interest rates.
Changing home loans could cost as much as $10,000 in exit fees, financial market researcher Cannex says. "The message to consumers: the one thing they need to understand is the risk of having to pay the break costs when interest rates go down,'' Cannex senior analyst Harry Senlitonga said.
Consumers on a variable rate mortgage, with an average $250,000 standard variable home loan are set to save more than $120 a month from next week if the RBA cuts rates as expected, on top of the savings already delivered by reductions in September and October.
Interest rates on fixed rate mortgages are now being slashed by the major lenders.
If rates do fall by the predicted 75 basis points next week, the official rate, now at 5.25 per cent, would fall to 4.5 per cent for the first time since June 2002.
Standard variable mortgage rates now average at 7.73, if all the savings were passed on to customers, home loan rates would fall to 6.98 per cent.
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