A Melbourne woman is taking on a mortgage lender over claims of “unconscionable” high interest rates and “excessive” exit fees.
Emily Hamilton is taking RHG Mortgage Corporation (formerly RAMS Mortgage Corporation) to the Victorian Civil and Administrative Tribunal (VCAT) after the lender told her she would have to pay $12,000 to exit her home loan.
Ms Hamilton was keen to refinance to a more-competitive loan after RHG increased her variable interest rate well above Reserve Bank of Australia (RBA) rate rises, Consumer Action Law Centre (CALW) spokeswoman Nicole Rich said.
“After she entered into the loan in July last year, RAMS, later RHG, started raising her interest rate to a point where now, even after recent RBA rate decreases, her rate is sitting at 0.99 per cent higher than when she signed, while the official RBA rate is two per cent lower,” Ms Rich said.
She said Ms Hamilton considered switching loans, but was faced with an “excessive” early termination fee of more than $12,000.
Lodging papers against the lender with VCAT on Monday, Ms Rich said CALW would argue the early termination fee was unconscionable because it exceeded RHG’s reasonable costs arising from the early end to the loan.
It will also allege the interest rate rises on Ms Hamilton’s loan were unconscionable and unreasonable, given they advertised the loan would keep competitive rates.
Ms Rich said borrowers signed up to variable home loans knowing the lender could raise or lower the interest rate, but lenders had no right to make arbitrary or unfair changes.
“Our claim also asserts that RHG has engaged in misleading and deceptive conduct by representing that the interest rate under the loan would remain competitive and not exceed the rate on a market leading loan, when this has not been the reality.”
A spokesman for RHG said the lender could not comment on the action while it was before the tribunal.
AAP
Richard Taylor | Australia's leading private lender
It's a pity there's not a law that will hang them. Lenders should make there money on interest and interest only. Simple and easy and none of these dozens of ways, fees and clauses where borrowers can get caught.
Hi Jaffasoft
But the early exit fees are interest fees. Early exit fees are just the difference between what they would have made had the client kept their loan with them and what they will actually get. The decision of whether to have fixed or variable rates is a decision where the risks need to be weighed up. One of those risks in fixing rates is that the rates will go down and the borrower will be paying more than if they had variable rates. The borrow can't just get out of the loan and get into another loan with a lower interest rate without having to pay the bank what they would have paid if they had continued the first loan. A mortgage is a legally binding contract.
I'm a bit tired of reading about people crying foul about high exit fees are now that rates have come down. They wouldn't be complaining if rates had gone up and they had saved $12,000 by fixing their rates. People trying switch banks now (and complaining about it) are just trying to avoid taking responsibility for making a decision that hasn't worked in their favour.
And I have no problem with termination fees either. It costs banks money to set up loans. If there were no termination fees then clients (us) would be just be able to switch between banks every couple of months or whenever we see a better rate at another bank. It would cost the banks money if they went to all that effort to set up a loan (get doc drawn up, valuations done etc) for a loan that was only going to be in place for a couple of months.
I do think that the case mentioned by Richard is very interesting and, based on what Richard has said, may just have some merit. The issue is not the high exit fees, but the fact that the high exit fees are tied to interest rates that have risen despite the RBA interest rates coming down. That is most definitely not competitive and quite possibly misleading or deceptive. Had the bank's interest rates come down with the RBA rates then the exit fees would be nowhere near as high and the woman wouldn't be looking around for a different bank. Good on her for taking the bank on, I say!
Cheers
K
K, this case is different, because it mentions in the article that this loan was a variable interest loan, and RHG had raised the rates. They couldn't have done this if it was a fixed rate loan.
Ms Hamilton was keen to refinance to a more-competitive loan after RHG increased her variable interest rate well above Reserve Bank of Australia (RBA) rate rises, Consumer Action Law Centre (CALW) spokeswoman Nicole Rich said.
“After she entered into the loan in July last year, RAMS, later RHG, started raising her interest rate to a point where now, even after recent RBA rate decreases, her rate is sitting at 0.99 per cent higher than when she signed, while the official RBA rate is two per cent lower,” Ms Rich said.
She said Ms Hamilton considered switching loans, but was faced with an “excessive” early termination fee of more than $12,000.
This is very different to people complaining because they fixed in at the wrong time.
Hi Dan42
You have misread my post. My comments about the high exit fees were in direct response to Jaffasoft's post. They were completely separate to the VCAT case.
In my final paragraph, where I commented on the VCAT case, I applauded the woman for taking issue with what the bank had done because, based on my limited reading, I thought that the lender may have acted unfairly by upping the rates when the RBA rates were coming down.
Cheers
K
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