How to avoid early termination fees

Exit and early termination fees can put the brakes on plans to sell, to refinance, and to renovate or purchase  an investment property. Here’s how to avoid them from the start.

Fees for the early repayment of variable-rate loans have been phased out by government reforms in 2011. However, fixed-rate loans may still carry these fees, and both fixed-rate and variable-rate home loans taken before the reforms may still impose penalties for early repayments. 

Early termination fees can be costly and are charged against fixed-rate loans that are exited before the fixed-rate term is complete. They can be charged in a number of situations, including switching home loans or making extra repayments on your loan.

If an exit or early termination fee applies to your loan, you may be able to receive a waiver or fee reduction, although you rely on the discretion of your lender to receive one. Having a good repayment history and being a long-term customer helps.

To avoid early repayment fees in future, it is a good idea to take extra precaution when deciding to take a fixed-term home loan.

Consider your future goals. Do you have plans to move city or change your job? Are there any foreseeable disruptions to your financial circumstance likely to take place during the space of your fixed-term rate?

The key thing to consider is whether to go for a variable option or a fixed-rate option. If you do take a fixed-rate mortgage, you will effectively be locking in the fixed-rate term, and the fixed-rate interest periods for whatever the term is.

That means that it’s not an appropriate product for someone who wants to pay out their loan early.

Avoiding exit fees on homes loans ultimately comes down to understanding the products you are able to choose from and being clear about what you are signing up for.

Contact an MFAA Accredited Finance Broker who can explain what your options are.