jayr

Presumably the fee should be (FIXED RATE - CURRENT RATE) x REMAINING TERM ON FIXED RATE plus some admin charges.

There is not enough competiiton in banking in Australia whihc is why the banks have made huge profits

ABCDiamond

I can see that point when compared to the UK which appears to have a fixed rate % as a break cost, but if the Australian banks did the same I reckon they could face some cash flow problems, and could end up going under, in situations like this.

It makes it difficult as we do like a strong banking system, with little risk of failing banks.

A useful website for this: http://www.homeloanexperts.com.au/fi...breakcosts.php

One bank quotes their break costs as: However, the formulae in their agreement is much more complex!

Different banks use different names for their break costs.

• Commonwealth Bank (CBA): Early repayment adjustment (ERA).
• National Australia Bank (NAB): Prepayment fees and economic cost.
• Westpac (WBC): Break costs.
• Australia and New Zealand Bank (ANZ): Early repayment fee (ERF).
• St George Bank (SGB/StG): Break costs.

Plus they have other fees on top. St George charge the Break cost + $2,500

MTPockets

I think that's the same thing really, which I think is unfair.

Profits - that's my point. I don't understand why the government has created a market where the banks screw over the taxpayers to this extent, nor why people don't kick up a fuss about it.

As mortgage repayments are most people's largest liability, it particularly makes no sense to promote this continuation while at the same time talking of the need for stimulus packages and handouts to assist those who are stuggling. Seems those banking lobbyists have done a good job of crying poor to get the government kowtowing to some notion that they need 'protecting'. A win-win for banks.

MTPockets

I understand that may the way it's done here, but I don't think it's right or that they'd end up going under. It's the job of a bank to manage their mortgage book cashflow through forward rate agreements, interest rate swaps etc. I'd seriously doubt the fixed rate risk incurred up to mid 08 is still sitting on most of their books. It would have been swapped into floating when they realised rates were going lower - a lot lower - and having access to funding data and flows they would also have known it earlier. Either way, I'd rather see a bank going under than mortgage holders.

You do realise however, that the 'strong banking system' is a charade. It's only this way due to lack of competition and protectionism - and nothing to do with banks being managed any better here than elsewhere. They have managed to effect a double whammy of consumer rip-off and regulator/government favouritism. The sole reason they're not caught up as much in the credit mess is because their business model allows them to make such huge profits off the back of Australians alone. I'm not sure that's anything to be proud of.

ABCDiamond

Bank profits are much the same in both UK and Australia, per population.In general, most people need pay very little in normal bank fees.
There are bank accounts available that have no fees.

It is normally the people who go overdrawn, or can't pay the credit card etc that rack up the fees.

ABCDiamond

Looking at those bank profits, if the ANZ lost $4 billion in bad debts, they would be losing money.

If Barclays lost $4 billion in bad debts, it's less than 30% of their profit, no hassle to them.

comet555

Agreed. We pay no interest on our credit cards because it's paid off in full every month. We pay $0 on our daily bank account because we keep the minimum balance in there (we like a good cushion). Also, because we have our mortgage with our regular bank they wave the yearly credit card fee so we don't pay that either.

So there are definitely ways to avoid the bank fees.

jayr

I don't know, (Fixed - current variabe) x remaining fixed term seems to be a reasonable way to calculate what a break fee should be. The fact that the bank may not have incurred that cost through prudent interest swaps is not somethng the customer should gain part of the benefit of surely?

I agree that more competition is required in the Australian banking sector but that probably means the government needs to be more hands off. At the end of the day competition and not government intervention will create the banking sector that we want.

MTPockets

There's quite a difference though in how those banks made their money - usual business and consumer banking vs speculative and financial market operations (rightly or wongly), domestic vs international.

Fees - I agree with you on the issue of credit cards and the like - and in addition to that I have little sympathy for those who are frivolous as they should be charged high rates for spending money they don't have. But I believe there should be be changes in how banks here charge for 'normal' services offered - the ones where people have little choice but to go to a bank (current accounts, withdrawing money, mortgages - excessive sub prime aside).

There should also be a promotion of more building society type organisations (and government assistance to make it happen) for those people who are prudent, don't borrow beyond their means would rather not throw their hard earned money into the banks' profit pool.

jimbo_d

It was banks competing against each other to lend to any old fool that lead to the collapse in the world banking system. I'd much rather pay a bit to a solidly run bank than have to pay for the rest of my life in taxes to bail out the calamities of so called banks like in the UK & US. Always read the small print!

MTPockets

It would be reasonable if it actually represented their risk, but it doesn't and the means by which banks hedge it isn't so much prudent as just normal operations. It's a simple game of pass the buck - somebody has to hold that risk at the end of the day, and here it all falls back onto the customer, and they don't even seem to mind...

And this is across the market. Recent capital raisings - a lot of them have excluded common investors. Government guarantees - we've yet to see those lower costs really translated into lower consumer borrowing costs (RBA cuts aside). It’s also been pretty selective as to which institutions. It's too one-sided.

Ordinarily nobody would argue with the break-fee (including me). But when you have such dramatic cuts within a short period of time it shows up just how ridiculous the methodology is. When assessing mortgages the average person will look at a fixed rate and think - ok in the worst case scenario it'll cost me x% to cut it - not 4% x remaining amortisation schedule over the life of the loan. Again, I know that's the way it is - caveat emptor and all that but I still find it unfair is there's no other option.

And yep I agree with you on more competition, but the means by which that could be enabled is via less of a safety net from the hand regulators and the government and a real free market of banking. So I do agree with you, but it's a circle of cause and event - something has to give first.

I'd rather just let the crap insolvent banks and companies fold, stengthen the position of other reasonable institutions - of which there are many and start again.

anawanahuanana

This is how the ANZ word it in the Ts and Cs. See if it makes sense to the layman. In my opinion, it doesn't. I tried to work out how much it would be, but was unable. So I called them. Wish I hadn't wasted the phone call....

Calculation of the cost of interest foregone
The ‘cost of interest foregone’ is calculated by following the steps outlined below. The terms
that are bolded are defined at the end of this clause.
• two amortisation calculations are made (using the market rate at the start of the fixed
rate period) based on all of the scheduled cash flow events and cash flow dates for the
period between the date of your early repayment and the scheduled end of the fixed
interest rate period.
• the first amortisation calculation is based on the balance of the loan immediately before
the early repayment less any portion of your next scheduled repayment that you have
not already paid and the available ‘tolerance amount’;
• the second amortisation calculation is based on the balance of the loan immediately
after the early repayment;
• for each amortisation, a present value is calculated for every cash flow event, using the
market rates at the date of repayment as discount factors, and these calculations are
added to give a total present value;
• the total present value of the second amortisation calculation, along with the early
repayment amount, is subtracted from the total present value of the first amortisation
calculation;
• the early repayment cost is the amount by which the total present value of the first
amortisation calculation exceeds the total present value of the second amortisation
calculation; and
• this is the amount you will be required to pay ANZ as the early repayment cost

ABCDiamond

All these people need to do is ask the bank what they have in the way of fee free accounts, and if the bank can't comply, try another.
They are out there, I bank with three of them, with no charges, and with a fourth who waive charges as we have a mortgage with them.

I read a lot about how new arrivals complain about Australian Bank fees, yet the same happens in the UK Then bank accounts, compare the two countries:Government assistance isn't needed. Free banking is already there, if people want it.

Wol

Quite straightforward.

Excuse me, I must go and lie down: my head hurts....

Generali

I think the lesson is to make sure you read all the T&Cs when buying something. The salesman always remembers to tell you the good bits but rarely the bad bits.