'Banks should disclose break fees' - MP

Aaron Gilmore

A National MP is putting forward a member's bill to ensure lenders tell borrowers how much they'll pay if they break their mortgage.

The Credit Contracts and Consumer Finance (Break Fee Disclosure) Amendment Bill will require banks and other credit providers to include the dollar amount of any break fee payable in the credit contract, as well as a plain English description of the calculation.

Recent drops in interest rates have seen homeowners looking to break their fixed rate mortgages, hoping to take advantage of lower interest charges.

"A lot of Kiwis are querying their lenders because of falling interest rates and getting a huge shock when the dollar amount they'll pay to break their mortgage is actually worked out," says National list MP Aaron Gilmore.

Currently lenders do not have to disclose the fee that may or may not be charged at the time of entering the contract. The formula used to calculate the fee may only be included as part of the terms and conditions of the contract. It differs from lender to lender and can be too complicated for many people to understand.

Significantly, as part of the terms and conditions, it can be changed by the lender without notice.

"This bill will not resolve the issue of break fee levels or how they're worked out, but hardworking Kiwis will at least know what they're in for when they sign their mortgage contracts.

"The bill will go some way to ensure that New Zealanders who are feeling the pain of the economic downturn are not tied to lending procedures they can't understand. When they sign up for a fixed rate mortgage, the level of break fees they may face will be clear and they will be able to factor this into their decision," Gilmore said.

"Mortgage holders will be able to take full advantage of falling interest rates, which in the long run will put more cash in their pockets," Gilmore said.