In spite of industry criticism, the government claims its pledge to scrap home loan exit fees from July 1 onward could help would-be borrowers compare the different products and providers on offer more accurately.
Comparison rates – also called annual percentage rates – give borrowers an idea of the total cost of their loan by combining interest rates and fees.
Under the current system, back-end charges such as exit fees, early termination fees and deferred establishment fees have not been included in this cost, as they do not apply to all borrowers. It has previously been argued, the Sydney Morning Herald reports, that comparison rates can be misleading because they do not show these costs.
But with the removal of home exit fees, these additional costs may not need to be considered – making the comparison rate a better indicator of the true total cost of a home loan.
Treasurer Wayne Swan commented that scrapping exit fees may make it easier for borrowers to shop around for the best home loan products, even if they already have a mortgage.
However, it is important for borrowers to note that home loans that are not secured by residential property will not face the ban – and exit fees in all loan contracts will still apply if they were entered into before July 1.