Early mortgage exit draws more price
Repaying your mortgage early can cost you more than $7,000 in exit penalties. That is one of the findings on home loan exit penalties uncovered by finance research group, CANNEX.
According to CANNEX, this should serve as a warning to unwary consumers that paying out a home loan early can hit you so hard in the hip pocket; you may need to take out a second mortgage to cover the cost.
CANNEX has analysed 399 standard and basic variable loans. Of these 113 had $0 exit penalties, but 140 had exit penalties of around $1,000, and 11 loans had much higher penalties of between $4,000 and $5,000. Exit penalties in general take the form of early repayment penalties and deferred establishment fees. For basic or standard variable loans, these can be as high as $6,715 if the loan is paid out after three years. Although the overall cost of the loan including interest, principle and total fees is what matters, exit penalties can have a big impact.
The average mortgage these days is terminated in less than five years, but some borrowers are not shopping around for better deal with this in mind.
The trap is set when consumers hone in on a mortgage offering minimum interest rate. It is perfect over time but when repaid in the first three years, it delivers a blow to borrowers who will incur heavy exit penalties, wiping out any advantage the lower interest rate may have given them.
The ideal way to say goodbye to exit penalties is to plan ahead and tailor your loan to suit your home-owning behaviour.
14-May-2007