Savvy mortgage buyers know the importance of making extra payments and choosing carefully fixed and variable rate loans. But not everyone pays sufficient attention to the exit fees that apply if you switch providers or pay off a loan early.
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A study earlier this year by the University of Melbourne examined the exit fees charged by 198 Australian financial institutions. Unsurprisingly, less conventional finance suppliers were the worst offenders when it came to large exit fees, with some charging fees 350% higher than those typically found at banks, credit unions and building societies. The latter two had the lowest rates.
On a typical $250,000 loan, the exit fee is an average of $420 from a credit union or building society. In some extreme cases, the exit fee was more than $5000.
Exit fees aren't a universal feature: 42% of home loans don't have them at all (though in those cases other costs such as establishment fees may be higher). They're more notably included in fixed rate mortages, as otherwise there would be no reason for consumers to stick with a given provider. They're particularly common with banks.
Large banks have, on average, almost twice the proportion of home loan products with exit fees than is the case for credit unions and building societies.
However, the study found that exit fees had dropped at banks between 2008 and 2010.
The exit fee isn't the only number you need to consider when assessing a loan, but if you imagine you might want to change providers at some point, it's definitely worth factoring into your calculations when you're planning to buy a property.
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