Consider opt out costs when getting a loan: Consumer Action Law Centre

When getting a home loan, particularly with the current tempting low fixed term interest rates on offer, the Consumer Action Law Centre has advised borrowers to consider their opt out fees upfront, as well as the long-term outlook.

Penelope Hill, manager of Consumer Action’s MoneyHelp service, has said that the banks are clearly looking for business, but warned that mortgages are long-term financial products.

While low fixed rates might seem good, if the market changes over the next five years they could face much higher rates at the end of the period that they are not prepared for. Similarly, redundancy, injury, illness and relationship breakdown should also be taken into account.

“Some people like knowing what they’ll be paying a few years in advance – it provides certainty and helps them plan ahead. But as part of that planning they should look at how they would cope with a change in the market or with a drop in income,” said Hill.

Similarly, she warned that sometimes banks fail to explain to new borrowers on fixed-terms that early repayment fees can be charged if they end their loan prior to the expiry of the fixed rate period.

“Unexpected charges can have a significant impact. Consumers should look beyond the headline interest rate and consider the terms and conditions of contract. Do they suit your needs? Are they flexible enough? What would it cost to break the agreement?

“Optimism is a great character trait, but when you’re shopping for a mortgage it pays to temper that optimism and think about a contingency plan,” she said.

She also warned banks and lenders of their obligation to lend responsibly, saying that they must ensure they meet borrowers’ needs and do not cause undue hardship. This includes factoring in the prospect of rate changes.