Latest NewsHow to Beat the FeesThursday, 13 April 2017

Though changing mortgage lenders may be getting easier, there is a negative to a quick exit.

If extortionate exit fees have had you trapped in an expensive mortgage, you are hostage no more.

Two massive advances within hours just recently should see these fall dramatically, freeing you to reap the huge savings on offer from cheaper, better products.

So what happened? And is it really so good?

Firstly, in a bid to avoid the public backlash the Commonwealth copped when it raised rates by more than the Reserve Bank, ANZ accompanied its higher hike - 0.39 per cent versus the CBA's 0.45 per cent - with fee cuts.

The cuts are designed to both appease existing customers (its $700 early exit fee is gone) - and entice new ones. Fee waivers and subsidies worth $1600 will apply to loans taken out before Christmas.

What's beautiful is that this puts pressure on other big players to revisit fees and nab, when it lifted rates 0.43 per cent on Friday, also scrapped its exit penalty.

But while ANZ seized the moral high ground on the contentious issue, it's not actually this flat type of fee that's the problem. The problem is the percentage-of-the-debt kind.

Applying for as many as the first five years, this can be up to 2 per cent of what you initially borrowed, so a huge $5000 on a $250,000 loan.

We here at AFR Investor have been waging a campaign against such fees since 2005. And our sister publication AFR Smart Investor penalises offending institutions in the judging of our coveted Blue Ribbon Awards.

Which brings us to the second development: ASIC's dictum that exit fees must reflect actual losses as a result of a broken contract. And to date, not into the future.

This clarifies how broader consumer protection laws in place since July will apply to mortgages and the regulator seems raring to test them in court. It's happy days. Except for one small detail: it's not big banks but non-bank lenders that mostly levy these fees.

In fact, non-bank lenders invented them so they could undercut their better-resourced competitors on interest rates. Loading costs not in the front but in the back of the loan, if you leave early, means they aren't reflected in the comparison rate.

Naughty but natty. And if you stay put, you do get a great deal. The danger now is that ASIC's crackdown will force these players, whose arrival in the market broke the big banks' dominance and drove prices down across the board, to also lift rates by more than the Reserve.

Not really the enhanced competition everyone had in mind, is it?

For you, yes, it has never been cheaper to switch loans - and mortgage brokers report an unprecedented spike in inquiries. But it's also never been more important to know the pedigree of the provider to which you switch.

You need one that is competitive - see page 9 for the top deals - but it's prudent to choose one that has also historically charged low exit fees. Such a provider is unlikely to have to reprice in future to recoup lost fee revenue.

That pretty much counts out non-bank lenders, which were the cheapest before the rate rise with an InfoChoice-calculated average standard variable rate of 6.93 per cent. The highest fees on its database are from Ratebusters, QuickDirect and HomeStar.

Banks as a group had the heftiest variable rate, 7.32 per cent, while the big four stood at 7.79 per cent on Friday. Banks typically charge flat exit fees of less than $1000.

Your best remortgaging bet might come from an unexpected place: credit unions and building societies. Run for the sole benefit of members rather than shareholders, their average rate pre-rise was a competitive 7.18 per cent.

Better still, they are model citizens on early exit fees. Not only are they almost always flat but they are the lowest of the lot.