Exit fee not as bad as double dipping mortgage insurance


Once the dust from the on again, off again big bank relationship saga settles, the Federal Government should have a far clearer picture on the immediate issues required to increase competition in the home loan market.

The current marketing ploys by the banks will not deliver tangible long term benefits for new customers according to Paul Ryan, CEO and Founder of intouch Home Loans, an independent non bank lender.

“The Government needs to understand that just 3 months ago the banks all increased their interest rates significantly above the RBA citing increased cost of funding. Yet in a small space of time they have declared record half yearly profits, increased their net margins and entered into a discount marketing war to attract new customers.”

Mr Ryan believes that the war chest subsidising this new customer acquisition is being derived from the bank’s existing customers, who should now consider the existing non bank lending options that already exist.

“Australians don’t like to be seen as punching bags and they can see through this marketing smoke screen,” Mr Ryan said. “What they need to now understand is that there is a viable non bank lending alternative offering better rates and an easier to understand more transparent service.”

However while the big banks are enjoying competing with each other the Federal Government banking reforms are doing little to increase the level of competition to keep the banks honest, warns Mr Ryan.

“The Government seems to be fixated on exit fees as being the major deterrent to why consumers are unable to refinance to a lower rate,” said Mr. Ryan. “This isn’t the case. The real elephant in the room is the double payment of mortgage insurance a customer is subjected to any time they look to borrow above the 80% of the property value.”

Mr Ryan believes that first home borrowers who took advantage of the Government’s first home buyers grant and obtained 100% finance from the banks will particularly be at the mercy of the banks.

“The exit fee won’t be the deterrent, it will be because they are required to pay for mortgage insurance again, a premium up to 2% of the loan amount,” said Mr Ryan.

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  1. Why not offer a solution to borrowers similar to the USA where borrowers pay LMI on a monthly basis for as long as the LVR is over 80%? No upfront payment required. Problem solved.

  2. Good idea but I imagine the insurers wouldnt like this idea. What we really need is more competition in this area. Currently its a cartel with QBE and Genworth the only players

  3. This is a major issue that needs to be addressed within the banking sector – Mortgage Insurers are running a massive rort. Here is a prime example – property purchased at 95% through a lender using Genworth; 3yrs later when looking to refinance to another lender at approx 87% LVR was told that LMI would be payable again – to Genworth! Talk about your double dipping, they charged a premium for the property but will charge again even though it is only the lender that is being charged and the amount being borrowed is not increasing… How do you justify that?

  4. Genworth and QBE don’t make the decisions on this one – It’s APRA. They are the ones that require the lobbying and pressure on this issue.

  5. But I TOTALLY agree with the sentiment – Have written to Wayne Swan et al on this particular matter, but just got a form letter back ‘explaining’ to me what LMI is and why it’s needed… Obviously wasn’t even read… Imagine my shock…


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