CALC likes higher up-front home loan fees

Higher up-front fees on home loans are preferable to other pricing approaches, which may confuse customers, the Consumer Action Law Centre wrote in its submission to the Senate banking inquiry.

At present, the fee structure for home loans includes a range of exit fees, some low and a few very high.

Because of this pricing practice, "consumers are much less likely to be aware of them than if they were disclosed clearly upfront," CALC writes.

"Behavioural insights teach us that consumers are also less able to take them into account in calculating the total of the loan than an upfront fee, due to biases such as over-confidence and hyperbolic discounting.

"This may lead consumers to wrongly choose a loan that is actually more expensive in total."

CALC also questions the failure of banks to reduce interest rates by a degree after the average life of a home loan, to take into account the fact that the lender has already recovered, by then, any costs left from setting up the loan.

"It also, then, follows that in the absence of an interest rate decrease at this point, ongoing interest payments are recouping additional inefficient profits.

"The interest rate remains at that higher level on an ongoing basis."