by Scott Pape - July 1st 2011
When Wayne Swan banned exit fees this week, he was thinking about Tony Abbott. Tony is, after all, a battler from the suburbs of Sydney with a $700,000 mortgage and a job that – let’s be honest – is less than secure.
Swan sniffed a political opportunity last year when the banks slugged battlers like Tony with rate hikes higher than the Reserve Bank increases – which many were effectively forced to wear because they were locked in from leaving by high exit fees.
Tony should be pleased, right?
Wrong, (and I’ll explain why in a moment). And neither are the smaller lenders. The Treasurer has been copping it all week from them, arguing that with exit fees they were able to compete with the banks by covering their backsides if a customer left them in the first couple of years, before they’d recouped their costs on writing up the mortgage.
The lenders are now working out how to recoup these costs another way. According to news reports, six smaller lenders this week began slugging customers with upfront fees, and there’s talk that more lenders will follow suit.
Personally, I think it’s all bluff. Most small lenders are going to cover their costs by charging higher interest rates rather than trying to stick a customer with an upfront fee. After all, consumers have been trained to haggle, and the upfront fee is the easiest one to get out of paying.
Instead what we’ll likely see is interest rate discounts for customers’ loyalty: you might get a marginally lower rate for each year you stay. Ratecity.com.au confirmed as much, explaining this year that eight products have introduced these offers.
Understand that the changes only apply for new home loans (sorry Tony), so if you are thinking about getting a better deal on your existing loan – and currently the banks are falling over themselves to sell more dough, so I suggest you do – check your mortgage documents before taking action.
If you borrow more than 80 per cent of the value of your home and it takes you the full term to pay it off, you could easily wind up paying more in interest than you did on the house.
That’s why the most lucrative call you make this year could be to your current bank. Tell them you’ll leave if they don’t match the best rate on the market (currently around 6.6%). Anecdotal evidence suggests they will.
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6 comments
This is just what I am in the process of doing. My fixed loan is just coming off, my broker is wanting me to switch to another bank so i am using it to hopefully get my existing bank to match.
We’ll see…
I just called Westpac to review my rate. They will call me back tomorrow but they are having issues matching the rate. Westpac rate at the moment is 7.16.
Can someone let me know where we can find this rate around 6.6%? I called my bank too and asked for them to match the current rate and they asked me where I was able to get that rate (basically, called my bluff). I’ve looked everywhere and can’t find anywhere that gets close.
I was looking for the same thing, turns out UBank had their rate at 6.59% – but they’ve just raised it to 6.79% I think. Anything under 7% is a good rate atm in my opinion.
I am with ANZ and was paying 7.03% and they are going to give me a new rate of 7.00%, so i got a tiny bit off but would not budge any further….what would you suggest??
I experienced the same thing. When I mentioned that the rate was being provided by UBank they said they’ve actually been informed by upper management that they will not be competing with UBank. Also tried to dissuade me from moving as they said that UBank might not be there in 6 months etc.. I pointed out that they were backed by NAB. I also pointed out that UBank’s business model was similar to the bookdepository’s and that their business model was more akin to Borders. How’d that work out?
It’s going to cost me almost $2k to move my mortgages given the exit fees (the person I spoke to also “warned” me that given my exit fees it makes more sense to stay with them). Given the difference in rate and the bank fees that I’m paying it’ll pay for itself in 2 years…