When you first take out a home loan, you’re generally not thinking about changing or paying off your loan early or refinancing. But if you then sell your property or want to refinance your loan, it means you're ending your loan early and because of that you can be charged some fees.
Other reasons people end a loan is to borrow more to renovate, refinance to take advantage of a competitive interest rate or even to consolidate other debts. Whatever the reason, it’s always worth being aware of fees when you’re considering taking out a home loan as they will vary from lender to lender.
Here’s an outline of when you could incur these fees, and the type of fees to look out for:
Home loan break fees
Break fees are sometimes charged when you end your fixed rate loan prior to the end of the fixed rate period and these can be very high. So when you’re considering refinancing your fixed rate loan or repaying your fixed rate loan ahead of the scheduled repayments, you’ll need to look out for break fees. Usually you are required to pay the break fee at the time you end your loan.
Home loan break fees may include the difference in interest payments between the rate you fixed your loan at and the current interest rate. If interest rates have fallen a lot since you took out your fixed rate loan, your break fee could be very high. Your loan provider will be able to tell you the amount of the break fee, so it’s best to ask them for this before you decide to end your fixed rate loan.
Early exit fees
Early exit fees are also called ‘early termination’ or ‘deferred administration’ fees (DAF). These are charged if you pay out your loan in full within a certain period of time (for example two or five years). Exit fees can still be charged on loans signed up before 1 July 2011 but some credit providers have removed these fees from existing loans. Pepper Money does not charge an early exit fee, however other fees and charges may apply on discharge of your loan.
A discharge fee varies between loan types and is payable when a lender agrees to your request to end your loan agreement. At Pepper Money the amount will be included in your loan agreement upfront so you will know the exact figure before signing on the dotted line. The lender may also charge additional legal costs and out-of-pocket expenses for preparation of the relevant documentation and the discharge of your mortgage. Talk to one of our Lending Specialists on 13 73 77 for more information on discharge fees or how to discharge from a Pepper Money Home Loan.
If you’re refinancing your home loan there could be several fees. Some of these may relate to setting up the new loan, but others may also be charged to discharge your current home loan. The fees for discharging your home loan may be one of those mentioned above, such as an early exit fee (for loans signed up before 1 July 2011), discharge fees or a fixed rate loan break fee.
There are many different fees that can be charged as part of a home loan, and break fees are just one category. That’s why it’s important to look at all the possible fees carefully when you’re considering a home loan. You can get all the facts about fees at MoneySmart or by contacting your lender. Speak to a Pepper Money Lending Specialist on 13 73 77 to discuss fees and charges for Pepper Money's home loan products.
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This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.