Loan churning traps home borrowers
Homeowners are being lured into refinancing to more expensive home loans by unscrupulous mortgage brokers, according to Mortgage Choice. Some loans with marginally lower interest rates also come with hidden fees which make loans more expensive overall, the broker says. It warns borrowers that changing lenders can be costly and to be aware of the increased pressure to “churn” mortgages in a competitive broking market.
Refinancing costs can reach $8,500 on a $250,000 mortgage and include application fees, loan discharge fees, loan stamp duty, early termination penalties, lenders' mortgage insurance and government charges. Mortgage Choice says a 0.5 per cent rate saving would save $1,250 a year but take almost seven years to cover the $8,500 in new fees and charges incurred.