How to avoid Extra Home Loan Fees?
Of course, a fixed-rate home loan is a great option for homeowners and borrowers looking for extra stability when it comes to their repayments. However, fixed periods sometimes presents limitations that make it almost impossible to makes changes to your loan as well as how you repay it without incurring extra home loan fees. Now, these fees can literary put the brakes on any plans to sell, renovate or purchase and refinance an investment property. So, you need to find a way to avoid these costs in any way possible, including consulting your mortgage broker about it. In this article, we will explore ways in which you can avoid the extra costs in totality.
A little background
Let’s start by saying that all the fees that were been charged for early repayment of variable-rate home loans were scraped off by the government in 2011. However, apart from the fixed-rate home loans still carrying these fees, both the fixed-rate and variable-rate loans that were taken before the government reforms might still incur penalties for early repayments. And these loans may still be running even up to now.
Fixed-rate home loans were issued for a term of five years and that was expected to be the case even after 2011. See, even before 2011, if you applied for a fixed-rate loan and decided to sell it, it was highly likely that you were penalized for early termination. This was because the lender saw the need of protecting himself against the loss of the interest they hoped they would earn from your home loan.
With the fixed-rate loans though, you can get a waiver or fee reduction, but only at the discretion of your lender, which means you ought to have a good repayment history or be a long-term customer before the lender considers granting you a waiver. In Australia, lenders do have varying policies when it comes to early repayment. Some lenders waive the home loan fees while others choose to charge them. There is no law prohibiting them from doing so.
How to avoid extra home loan fees?
Considering the many incentives that are designed to stimulate the Australian economy, the property landscape is rapidly changing, which is obviously good news to mortgage brokers as well as first home buyers. What’s more, there are federal schemes introduced by the government targeting first homeowners. For instance, the HomeBuilder program provides home-owners/occupiers – including first-time homeowners – a $25,000 grant for the renovation or rebuilding of their homes. And with the government having streamlined the lending system, things can be looking any better than this for first home buyers.
Going into the future, to avoid early repayment fees, it is recommended that you take extra precautions when taking a fixed-term home loan. The thing is, the costs charged on fixed-rate loans include early termination fees and exit fees. The exit fee is somewhere between $150 and $350, where early termination fees are a little bit higher and are often charged on fixed-rate loans that are terminated way before the term is up. Fixed-rate loan fees can also be charged in situations such as making extra repayments on your loan or switching between home loans.
The main decision here is determining whether you are going to take a variable-rate loan or the fixed-rate option. If you go for the latter, you will be locking in the fixed-rate term and the fixed-rate interest period for the specified term. This means that if you think you might pay up your loan early, then this is not the appropriate product for you.
So, before you take a fixed-rate loan, you need to ask yourself this; what are your future goals? Are there any plans for you to move to a different city or change your current job? Also, do you see any foreseeable disruptions to your financial situation that are likely to occur during the fixed-rate term? These are considerations that will go a long way in ensuring that you avoid some of these home loan fees.
Moreover, if repayment stability is what you are yearning for, how about you consider a split rate mortgage, which offers you the benefits and the stability a fixed-rate loan offers, but now with the flexibility and bonus features of the variable rate option. Typically, these loans enable you to make unlimited repayments and also include loan features such as redraw facility or offset account not offered by standard fixed-rate loans.
You can also consider a portable loan option, as it allows you to transfer your current loan onto a new property when you move. This option ensures that you avoid paying loan establishment fees.
In the end, avoiding home loan fees ultimately depends on whether or not you clearly understand the loan option you are about to choose and that you are clear on what you are about to sign up for. This is where a mortgage broker comes in hand as he/she is able to explain each and every product in person and in a way that you would be able to understand. We highly recommend that you don’t take a mortgage that you don’t know anything about. It is money you are dealing with here, and so, you need all the help you can get.
If you want to get a complimentary assessment of your home loan, call Uplift Accounting – Home Loans division in Mulgrave on 03 8510 7527 to schedule an appointment or submit your enquiry via our contact us form.
About Uplift Accounting
Uplift Accounting is a boutique tax practice headquartered in Mulgrave, Melbourne. A team of qualified and well-experienced tax accountants, bookkeepers and mortgage brokers in Uplift Accounting will help you navigate your personal and business tax affairs smoothly.
We work Australia-wide whilst we have a couple of local offices.
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To learn more or book an appointment, contact us or call us on (03) 8510 7527.