Aust govt to ban mortgage break fees?

April 19, 2009

The Australian government is considering a ban on mortgage break fees  which ought to be regarded with concern.

Mortgages are contracts and a government that gets between parties in a contract is treading in very dangerous waters.

Banks are being criticised for charging break fees for customers who want to get out of fixed term deals. If the charges were well above the cost there might be grounds for that criticism, but breaking a mortgage incurs expenses for the banks and they are justified in expecting customers to pay reasonable costs associated with backing out of a deal.

Banks have also received criticism for not passing interest rate falls on to people with fixed mortgages, but I have yet to hear anyone suggest that these customers pay more when interest rates rise.

If you agree to a fixed interest loan you gain if interest rates rise and lose if they fall. If you choose to use the floating rate you’ll be able to take advantage of falling rates but have to pay more if they rise.

There is no certainty. People who borrow have to accept the risks which come with it and governments should be very wary about trying to protect them from those risks.

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