Please visit the ASIC Mortgage Switch Calculator for more information.

One of the main costs associated with mortgages is Lenders Mortgage Insurance. The ASIC calculator does take this into account but you need to find out what it will be. You should discuss this further with your mortgage adviser.

Lenders Mortgage Insurance (LMI) is an added cost where the size of the loan is greater than 80% of the value of the property against which the loan is being taken out. If the loan is greater than 80%, LMI will be an added cost which is usually added to the home loan amount.

The problem is if your loan is still greater than the 80% level new LMI will be needed for the new loan. To complicate things further a new valuation will be needed by the new lender and this may also cause further issues for consideration.

The following table shows the rate increases for Australian banks whom have an indentifiable high interest savings account suitable for Self Managed Super Funds (DIY Super).

Compare DIY Super savings accounts

Warning: Product features such as interest rates and fees can change without notice. Please check all details with the product provider prior to taking any action.

Here are some other banks that offer quite a bit more on their savings accounts than the big four banks.

Warning: Product features such as fees and interest rates applicable change without notice. Please confirm all details with the relevant product provider before taking any action which may lead to financial loss.

Latest Big Four Bank Mortgage Rate Increases

These rate increases have now been passed on by all the big four banks to their products as shown below:

Exit Fees in the Spotlight

ANZ whilst increasing its rates by 0.39% also indicated that it would be abolishing the Deferred Establishment Fee (an exit fee) for mortgages and providing the following incentives for new and existing customers:

Waiving the loan approval fee of $600 and a subsidy of up to $1,000 to offset exit fees from other lenders for those switching. BUT ONLY IF YOU SWITCH TO A 3 YEAR FIXED RATE HOME LOAN.

ASIC in a media release on 10 November signalled their intention to prevent banks charging unreasonable exit fees.

“Mr D’Aloisio said that ASIC’s initial focus will be on the highest fees in the market as they create the biggest barriers to switching. ‘We will challenge lenders who charge high fees to justify how their fee reflects actual losses caused by early termination. Where an exit fee cannot be justified by the lender, ASIC will take compliance or enforcement action.’”

Home Loan Switching Tips

Switch to a basic home loan product. Every major bank has two types of variable home loans, a basic product and a “standard” product. There is typically very little real difference in features between these products but the interest rate difference across the Big Four Banks ranges from 0.50% to 0.70% pa. On a $300,000 loan this works out to be $136.33 pm or 1,636 pa. If this was applied to your loan it would result in paying off your loan up to 4 years and 7 months earlier.

Hang on – What are the Exit Fees and Application Fees

Before you rush off to switch, ask your current loan provider what the exit cost are. Make sure any recent interest rate increases are accounted for in the calculations. If the costs are significant it may pay to wait 12 or more months as exit fees are typically much higher in the first 5 years. Each product is different and you need to find out these details from your bank.

You also need to take into account all costs associated with the new loan. If your loan to equity ratio is high there may be more costs involved.

The easiest way to switch home loans is to consult a professional mortgage broker. They are required by law to take into account your situation before making a recommendation. A good mortgage broker will also be familiar with most products on the market and be able to answer any questions.

Warning: Home loans have exit fees. Please consult your current lender to find out what they are before considering switching to another product. It’s strongly recommended that you consult a reputable licensed lending adviser before taking any action as large financial losses may result from imprudent decisions.

ASIC Exit Fee Summary

ASIC have compiled a summary table of exit fees to help the public understand what you might face when you switch home loans.

Summary

Key issue	Summary of ASIC guidance
What is an early exit fee?	Any fee payable on early termination of a residential loan, generally including deferred establishment fees.
Types of costs and losses which may be able to be included in an exit fee	break fees when a fixed rate loan is terminated administrative costs (e.g for processing the early termination and calculating the payout figure) third party costs that arise because of the early termination costs that have not been recovered because a loan with a honeymoon or introductory interest rate is terminated early unrecovered establishment costs arising from a lender’s inability to recover establishment costs during the shortened period the loan was on foot.
Types of costs and losses which may not be included in an exit fee	loss of profits that would have been received if the loan proceeded to the expected term or if the loan had lasted beyond the time at which the customer terminated the loan marketing costs and other costs associated with obtaining new customers costs associated with developing new products.
The limited circumstances in which a lender may vary an exit fees	Lenders will generally not be allowed to increase early exit fees on variable rate loans after the loan has commenced, particularly if the early exit fee comprises unrecovered establishment costs.
How lenders can explain their early exit fees transparently	explaining in a meaningful and clear way when the fee will be charged clearly stating the amount in dollars of the fee or, if that is not possible, the method of calculation using prominent warnings to explain risks associated with early termination fees, particularly break fees using meaningful worked examples of break fees, as long as they can be provided in a way that is not misleading.
Break fees on fixed rate mortgages	The break fee must reflect the cost incurred by the lender because the loan was terminated early.

Note: the following table is reproduced from the ASIC website for your benefit in accordance with ASIC’s linking policy. Please note this site is not affiliated in any way with ASIC and the reproduction of ASIC material should in no way infer that this site is endorsed by ASIC.

Details of the ING Direct $1,000 offer

“Refinance your existing home loan to ING DIRECT and open an Orange Everyday by 30 June 2011, and as our way of saying thanks and to help you with switching banks we’ll credit your Orange Everyday with $1,000!” (from ING Direct website)

You must register here before 30 November 2010.

Issues to consider

What are exit fee costs of our current mortgage?
In the first few years of a mortgage exit fees can run to tens of thousands of dollars. You need to ask your bank for the details based on the current interest rate. Be aware that if there is another interest rate rise between when you ask to switch and when the switch takes place the exit fee could be much higher.

Compare ING Direct Interest Rates

As you would expect ING Direct have a suite of competitive home loan products.

At the time of writing, the only the Commonwealth Bank has raised rates of their home loan products in response to the Reserve Bank of Australia (RBA), increasing cash rates by 0.25% on 2 November. The Commonwealth Bank citing increased costs associated with borrowing wholesale funds, increased their home loans by 0.45%. The remainder of the big four banks have remained silent waiting for consumer anger to pass.

Be aware when making comparisons, that expected increases to ANZ, NAB and Westpac home loan products has not yet been passed on. It is expected that these increases will be at least 0.25% and up to 0.45%.

Costs of Switching Home Loans
Whenever you consider changing products you should make yourself aware of any costs that may apply. This includes costs from your current product provider and the provider you are considering switching to. Even though the new product may have a lower interest rate and repayment schedule, the cost of exiting your current product may mean that it is not financially beneficial to switch. Exit fees for some home loans in the first few years can run into tens of thousands. You should also be aware that any quoted exit costs will probably change if there is a rate rise between when you ask to switch and when the switch actually occurs. If there has been a interest rate change initiated by the RBA, be very careful.

Pro’s and con’s of ING Direct
ING Direct follows a “direct banking” model which is heavily reliant on internet and phone banking to service your needs. They do not operate typical bank branches and a limited physical presence allows them to have lower running costs and hence the ability to offer more competitive products. They are owned by the international Dutch banking group ING Group, the third largest savings bank in the world. They currently have approximately 1.4 million Australian customers and are Australia’s fifth largest bank.

Despite these “extra costs” they are making record profits. Does this seem fair?

You are paying for the Big 4 Bank Profits.

“ANZ Banking Group Ltd says its third quarter net profit was up 37 per cent”
“THE Commonwealth Bank has delivered a record $5.66 billion profit, fuelling claims of profit-gouging”
“The National Australia Bank has reported a 63-per cent jump in full-year profits to $4.2 billion”
“Westpac profit soars 84% to record $6.4bn”

Here’s what you can do to beat them at their own game.

Get out of your comfort zone!

Most Australian’s bank with the big 4 (ANZ, Commonwealth Bank, NAB and Westpac) and most people have, bank , savings accounts, credit cards, car or personal loans and a mortgage or home loan. If you take a little time to compare what’s available, get out of your comfort zone and actually move your custom to the better alternatives you will save money and force the big banks to compete.

Did you know three of the big 4 actually have smaller subsidiaries.

• Commonwealth Bank owns Bankwest.
• NAB owns UBank.
• Westpac owns St George Bank.

These subsidiaries typically allow the big banks to engage in more competitive practices to combat the lesser known players (in Australia) such as ING Direct, Rabo Australia, Citibank and HSBC. You will typically find that the interest rates offered by these subsidiaries and lesser knowns banks are more competitive than the big 4.

Now note the last banks mentioned. These are not small banks but some of the largest banks in the world whom have an Australian presence. If you are worried about having your money or loans with banks smaller than the big 4 then this is not a reason to discount these banks.

You have to be prepared to widen your view past your childhood school bank account if you want to save.

You don’t have to have all your eggs or bank products in one basket because managing multiple accounts with internet banking is easy.

One bank might have the best home loan rate whilst another might have the best savings account interest rate. Using the net makes it easy to transfer money between banks and you can ask your bank not to send you hard copy statements to cut paperwork.

Kick them where it hurts. Show them what loyalty means. Don’t get mad, get even.

Top 10 Ways to Screw the Big 4 Banks

1. Transfer all surplus cash to a high interest savings account. Compare high interest savings accounts.
2. Transfer your mortgage to a lower interest rate home loan. Use a reputable mortgage broker to save time.
3. Open a no monthly fee transaction account and arrange for your wages to be deposited into it.
4. Pay down or pay out outstanding credit card balances and close the card or transfer to a no annual fee credit card.
5. Balance transfer large credit card debts to a low interest credit card.
6. Don’t get sucked in by credit card rewards programs that you fund with higher fees. Transfer to a low interest or no annual fee credit card.
7. Debt consolidation. Amalgamate high interest loans (personal loans, car loans, credit cards) into your home loan and keep making repayments at the old level.
8. Check out the more competitive subsidiaries – CBA/BankWest, Westpac/St George, NAB/UBank.
9. Play them off. Tell your bank you are going to leave for a lower cost competitor and ask them to match it. Check exit fees payable before taking any action.
10.Get the best banking product wherever you can. With internet banking you don’t need to have all your products with the same provider.

Compare, move and save or they will treat you as they do now.

Warning: The majority of bank loan products (home loans and personal loans) and some other bank products will have exit or early repayment fees that may be applicable. You must find out what these are before taking any action. Any decision to change products must take these factors into account. Please seek advice from an appropriate professional adviser before taking any action.

“Virgin Money is here to make all Australians better off. Today we’re launching the first in a range of new products starting with two credit cards and an online savings account – all of which are best in class. There is no better time to offer Australians a genuine alternative with simple and fairly priced banking products in an industry where there’s less competition today than ever before. This is classic Virgin territory,”

“Yes, Australia steered itself superbly through the Global Financial Crisis, but unfortunately this came at a price: the elimination of genuine choice. The finance sector in Australia has become highly consolidated and is now dominated by the Big Four, which results in the average Aussie getting less choice.”

Yawn. The second time around the gloss or the shine of Sir Richard’s Virgin brand seems to have become a little tarnished. I mean all the words are there, the sexy young things are there and the fantastic deals are there. Whoa back up there a minute, the fantastic deals? Hmm might check the detail a bit later on that one.

Sir Richard says there’s less competition in the market today. Well duh, when the going got tough, you left sport! You might also recall you sold your old Virgin customers to Westpac?

Why did Virgin leave and will they leave again?

The original products were essentially Virgin badged Westpac products. The original agreement with Westpac ran for 5 years, at the end of which Virgin accepted a short term deal whereby they sold ownership of the customers to Westpac. Valued customers? Too right, you were valued at $39 million or about $78 each. The main reason for leaving would appear to be the lack of profits and the end of that agreement.

The latest products are backed by Citibank under a 10 year deal. You should be worth at least $150 at the end of that deal. Let’s hope at the end of that agreement the card is profitable and a new ongoing agreement is put in place in good time before it comes to an end.

Low Rate and No Annual Fee Credit Cards

The biggest selling point of the Virgin No Annual Fee Credit Card is of course the no annual fee. However, if you actually do use it and rollover any outstanding balances from month to month then despite the lack of an annual fee your fees will add up pretty fast by virtue of the ordinary interest rate.

* This is the Westpac credit card to which the old Virgin credit card holders were transferred when Virgin quit the credit card market in Australia in 2008. Unfortunately, it is not open to new applications.

No Annual Fee Credit Cards

If you do really want a no annual fee credit card then there are other offerings from outside the big four banks, despite what Virgin would have you believe.

Airline Credit Cards

Virgin’s main competitor in the airline market is Jetstar. Let’s compare the two offerings and a Velocity card from NAB.

Whoa on the face of it the Jetstar credit card gives the Virgin a flogging. The interest rate, annual fee, interest free days and balance transfer offer are all better on the Jetstar card.

Pink Credit Card

Unfortunately Virgin isn’t offering a pink credit card option this time around. However, you can have a pink credit card thanks to NAB Low Rate Visa.

Savings Accounts

Aha at last some clear sky for Virgin. The Virgin Savings Account, Virgin Saver beats all of the Big 4 banks with their offering based on interest rates. Just to be sure lets take a closer look. Yep all four of the big banks have inferior promotional and standard interest rates. If it wasn’t for NAB owning UBank, Virgin Money could claim this round too. Whilst Virgin are offering a promotional interest rate that is similar to the interest rate on home loans (a clearly unsustainable strategy), the UBank standard rate is clearly superior.

Conclusion

Now I like Sir Richard, even if he is a Pom nice Englishman and takes his profits overseas, it’s rare to hear him whinge. I reckon, if you invited him over for a BBQ, he’d bring some nice looking people for a swinging good time. However, if you want good value from your financial products have a look around before buying this tired old Virgin marketing exercise thats been around the blocks before.

Disclaimer: Financial product details such as interest rates and fees change without notice. Please confirm all details with the product provider before taking any action. If you need advice you would be wise to consult a Financial Planner.

Bank Products and Services

Citibank Citigold
Requirements: minimum deposits or investments with Citibank of at least A$100,000

Members of Citigold get a Relationship Manager, who is a combination investment adviser and banker who will ‘proactively pursue the right financial solutions for you’. They act as your central point of contact with the bank and can seek further advice from internal investment, mortgage or treasury consultants if required. Regular reviews of your financial situation are an included benefit.

Along with access to the full suite of Citibank products you will be eligible for discounts on annual credit card fees for the Platinum Credit Card, reduced fees on certain mortgage products, preferential pricing on Term Deposits, 50% discount on Financial Planning Plan preparation fee, discounts of up to 45% on various insurance products and preferential rates on Foreign Exchange transactions.

Other services include; worldwide Citigold Emergency Healthcare Service, Citigold Global Banking, Seminars, regular updates on investments and research.

HSBC Premier
Requirements: minimum of $500,000 in total loans or $200,000 in HSBC deposits or investments or a combination of the two. You must also maintain a HSBC Premier Cash Management Account.

You get a HSBC Premier Relationship Manager who is ‘dedicated to helping you meet your financial goals’. As well as having access to the HSBC Premier Financial Planning service, members get preferential pricing, discounts or fees waived on a number of services or products including; mortgages, deposit products, stockbroking and bank charges.

If you would like to visit the ski resort of Hotham at Mount Hotham in the Victorian ski fields then you can take advantage of HSBC’s exclusive Snow Holiday deals.

Foreign Currency Accounts
Both Citibank and HSBC offer Dual Currency Accounts and Multi Currency Accounts.

Credit Cards

For brevity we have only compared the lowest rate credit cards. For more information click the links below.

• Compare Citibank Credit Cards
• Compare HSBC Credit Cards

Savings Accounts

Name	Interest Rate
Citibank Online Saver	6.35% pa intro rate (6 mths) then 5.25% pa
HSBC Serious Saver	5.00% pa for every month you don’t withdraw

Interest on Bank Accounts

The Treasurer outlined a 50% tax discount on the first $1,000 of interest earned. This gives potential savings of $75 for those on a marginal rate of 15% and $225 for those on the top marginal rate of 45%. This change is expected to come into force from 1 July 2011 and is to apply to interest bearing deposits with authorised deposit taking institutions which includes bank accounts, term deposits, bonds, annuities and debentures.

First Home Saver Account Changes

Previously if you held a First Home Saver Account (FHSA) and purchased a new home before the end of the qualifying period of 4 years then the account proceeds would have been compulsorily transferred to your superannuation account. The nominated changes will now see the funds go into your eligible mortgage at the end of the four year qualifying period.

Superannuation

Superannuation Co-contribution

The matching by the Government of personal super contributions was to increase from 1 July 2012 to $1,250 and again at 1 July 2014 to $1,500. Now it will remain at $1,000. Furthermore the thresholds on which the co-contributions are based will be frozen for the next two years. The current threshold under which you could receive the maximum co-contribution is $31,920 with the fade out threshold $61,920.

New Concessions for Superannuation Guarantee Contributions

The Government has indicated that in will effectively remove the contributions tax on normal employer superannuation contributions for workers on incomes up to $37,000 from 1 July 2012. The contributions tax on the current 9% super contribution for someone on an income of $37,000 is approximately $500.

12 per cent Superannuation Guarantee

The Government has indicated that it will legislate to increase the superannuation guarantee, from the current 9% to 12%, incrementally by 0.5% pa from 1 July 2013 until 2019/20.

Increase in eligibility for compulsory Superannuation Contributions to age 75

From 1 July 2013 the maximum threshold for compulsory superannuation contributions will be lifted to 75 years.

Superannuation Concessional Cap

The concessional cap on superannuation contributions for individuals over 49 years of age and with less than $500,000 in super will be lifted to $50,000 pa from 1 July 2012.

Tax

Simple Treatment of Work Related Expenses

From the 2012-13 financial year tax payers will provide have a choice of a $500 standard deduction to replace deductions for their work related expenses and cost of managing tax affairs. This is slated to increase to $1,000 in 2013-14.

For those with more complex needs they will be able to continue to claim expenses by the current methods.

Low Income Earner Tax Offset (LITO)

The Low Income Earner Tax Offset will be increased to $1,500 with a $30,000 fade out threshold. This means that a individual earning less than $16,000 or a recipient of a superannuation pension of $48,158 should pay no tax.

Senior Australian Tax Offset (SATO)

The maximum a senior Australian can earn before paying tax or the Medicare levy will now be $30,685 for singles and $26,680 for members of a couple.

Child Care Rebate

The annual Child Care Rebate is to be dropped from the current $7,778 to $7,500 with indexation suspended for the next 4 years.

For more details visit the Government Budget website

Previously there was a four year waiting period before the First Home Saver Account (FHSA) could be used to help purchase a new home. If you did buy a home within this time period then the balance of the FHSA would be compulsorily transferred to your superannuation account.

The proposed changes will enable the accumulated account balance at the end of the the four year period to be paid into an eligible mortgage. So if you purchase a home within the 4 year qualifying period you have to wait to the end of it before the funds can be released into your new mortgage.

Budget Overview

Compare FHSAs