Property investors, brokers and the Banking Ombudsman are calling on banks to stop double dipping on mortgage break fees.
Monday, February 9th 2009, 12:05PM
by The Landlord
Currently banks are only allowed to recover their “costs” when a borrower breaks a fixed-rate mortgage. However the rules in the Credit Contracts and Consumer Finance Act are interpreted differently by individual lenders, allowing some to charge up to three times as much as others.
Some mainstream have been accused of "double dipping", by brokers – lending money to borrowers at retail rates, charging break fees on wholesale rates and then re-lending the money at retail.
Banking Ombudsman Liz Brown says the lenders' interpretations need to be tested through the courts and that is the role of the Commerce Commission. “We do need some better guidance for the banks and other lenders,” Brown says.
She is awaiting the outcome of an appeal over a case the commission took against Avanti Finance for breaching the act in respect of break fees, but lost.
The issue had come to the fore since interest rates started falling rapidly last year and borrowers found themselves fixed on rates well above deals available now.
New Zealand Mortgage Finance broker Richard Baker described what some of the lenders are doing as "double clipping the ticket".
While Kris Pedersen, of Property Financial Solutions, said the system for calculating fees was so complex that only someone with a calculus degree would understand it. Few made the calculations available to the public.
Roost broker Annette Kann says one bank used wholesale rates to calculate the break fee – but those rates couldn't be found on its website. She also found out that the loan was in her case rounded up and then break fees charged. The logic was, she said, if the outstanding mortgage was $173,421, for example, the bank said it couldn't lend out such an amount, so rounded it up before charging the fees.
