Watch out for hidden early exit fees

Home loan borrowers should watch out particularly for the big sting from "deferred establishment fees" which come into play these days if you leave a variable home loan early, typically within the first 3-5 years. They can be as large as the break costs on a fixed term loan and run into thousands.

The massive increase in loan churning and the resulting fall in the average life of a mortgage has seen new emphasis placed by lenders on fees for leaving a loan after the first few years. Especially watch out for these new fees on loans that offer low or no upfront fees when you take them out.

While most borrowers don't expect to change their loan in the first few years, the fact is that the average life of a home loan is now very short - as low as 20 months according to recent industry analysis - before refinancing, moving house, or payout result in a borrower terminating a loan arrangement.

Exit fees could be a flat fee of between a few hundred dollars and $2,000, or a percentage fee of 1 to 3 per cent of the amount outstanding at the time. On an outstanding loan of $200,000 this could be as high as $6,000. These fees are not incorporated in lenders' Comparison Rate calculations, one of the reasons there is an increasing incidence of these charges.