Delays Lift Home Costs
Sydney Morning Herald
Wednesday November 19, 1986
LAST week's Money Today discussed the hidden costs of home loans, such as non-refundable application fees and annual loan maintenance charges.
But mortgage costs can be even higher if the purchase is held up. Just what extra costs are incurred depend on the length of the delay and on the particular bank or building society.
Of the 10 major home loan lenders in NSW, seven have provisions which allow them, in effect, to impose an "undrawn loan fee" if the borrower fails to draw down (that is, use) the loan within a specified period. Some have the option of withdrawing the loan.
These seven are Westpac, ANZ, National Australia Bank, State Building Society, Advance, United Permanent and St George.
The Commonwealth, Chase AMP and Citibank say their agreements have no provision for undrawn loan fees. But these three lenders impose fairly large upfront fees which are either not refundable or only partly so.
St George and United have no undrawn loan fee but can impose penalties where delays occur.
The provisions vary quite significantly among the lenders, with Westpac, the ANZ and the NAB all making a charge for each month or part of a month in excess of three months that the loan is approved but not drawn down.
Westpac charges 15c for every $100, so a $60,000 loan therefore costs $90 a month.
The ANZ's fee is 0.125-0.25 per cent - between $75-$150 a month on a $60,000 loan, with the precise amount of the penalty left to the discretion of the branch manager.
The NAB's fee is 1 per cent a year, calculated monthly, representing $50 a month for a loan of $60,000.
The State Building Society allows only one month in which to complete the loan and then charges 2 per cent a year. On a $60,000 loan this is equal to$100 a month (or part month.)
The Advance Bank quotes its fee as 0.16 per cent a month - which amounts to$96 a month in the example. This penalty applies three months after the loan is approved and again is calculated on a full or part month.
In the case of both St George and United Permanent, both retain the right to insist that repayments start before completion of the purchase. St George can do this after two months and United after three.
However, spokesmen for both societies said that this condition was rarely if ever imposed.
Postscript: One area of confusion among hidden costs relates to what the Commonwealth Bank terms "capitalisation" charges.
In response to last week's table giving the Commonwealth's fee on a $60,000 loan as $500, several readers rang complaining about these capitalisation charges.
In fact, such charges simply refer to interest and government costs which are added to the amount borrowed rather than paid at the time the loan is drawn down.
Specifically, the Commonwealth doesn't require any repayments to be paid until two weeks after the loan is used, but interest is charged during that time. This interest is added to the loan amount, that is, capitalised.
The same procedure is followed with a number of government charges, such as registration fees.
Borrowers can choose either to pay such charges and interest payments upfront or have them capitalised. A similar option is apparently offered by some other home loan lenders.
However, the Commonwealth acknowledges that its capitalisation arrangements often cause confusion and are thus in the process of being modified.
© 1986 Sydney Morning Herald
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