Mortgage exit fees for new home loans in Australia will be abolished beginning July 1 as part of efforts to overhaul banking law.

This will also allow the Australian Competition and Consumer Commission to be able to investigate any possible price signaling between National Australia Bank, Commonwealth Bank, Westpac and ANZ. The practice of price signaling is defined as when banks flag changes to their home-loan interest rate in advance, thus leading competitors to follow and eventually reduces competition.

Banking reforms will also include the federal government making an official symbol that certifies that smaller banks, credit unions and building societies deposits are government guaranteed.

"Competition is the best way to keep interest rates lower over time, and helping Australians walk down the road and get a better deal if their existing lender isn't looking after them is crucial to that," Treasurer and acting Prime Minister Wayne Swan said last year. "We've worked long and hard on these reforms with our regulators to make sure that they are effective, enduring and don't let the big banks off the hook."

The mortgage exit fee changes have garnered popular support among home loan holders with close to 40 percent wanting to change lenders according to a Newspoll survey.

Founder of Intouch Home Loans, Paul Ryan, said that doing away with exit fees would lead to lenders to either hike interest rates or go back to application fees of between $1000 and $1500. "If somebody's taking away your income, you've got to find new ways to make that back, one way is an application fee or an interest rate increase," he told Perth Now.

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