What are the fee changes?
- For new loans made post 13 June 2016, the Service Fee has been replaced by a Lender fee.
- The Lender Fee will be charged only on interest received.
- On Dec 3, 2015 we moved to a flat platform-fee of $375 for all risk grades and loan amounts.
- From Dec 23, we increased interest rates for the risk grades where the possibility of default is higher. This increased the weighted average interest rate across the portfolio by 2%.
The new fee structure explained
From June 13th, 2016 we will replace our Service Fee of 1.25% of the principal and interest payments collected on each Borrower repayment, and introduce a Lender Fee for all new lending. The Lender Fee is charged only on interest received, and is charged in a tiered structure that recognises the amount Lenders have placed through the platform – the greater the lending, the lower the fee. The interest-only application of the lender fee means we have to keep delivering returns to receive this fee, plus Lenders will no longer be charged fees on principal repaid early due to prepayments and Rewrites.
The Lender fees will be tiered based on how much principal each Lender has invested at the time that they make the Investment Order.
(At time of Investment)
|Tier 1||$1 - $9,999||20%|
|Tier 2||$10,000 - $49,999||17.5%|
|Tier 3||$50,000 +||15%|
A couple of examples:
- If your principal balance at the start of the day is $8,000 (and therefore you are in Tier 1), and you invest an additional $1,000, then each new loan will incur a 20% Lender fee.
- If your principal balance at the start of the day is $10,001 (and therefore you are in Tier 2) and you invest an additional $1,000, then each new loan will incur a 17.5% Lender fee.
- The tier you are in is assessed daily. Regardless of your investments within that day, you will remain in that tier until the following day. Therefore, if your Principal Balance is $9,999 (and therefore you are in Tier 1) at the start of the day, then any funds you invest during that day will incur the Tier 1 Lender Fee rate of 20%.
The following tables outline how the new fees could theoretically affect a Lender's portfolio returns.
|Portfolio Return over 36 Months (before tax)|
(Tier 2 - 17.5%)
|Borrower Interest Rate||18%||20%||+2%|
|Service / Lender Fee||$573||$1572||-$999*|
|Net Return (pre-tax)||$6,431||$6,330||-$101|
|Realised Annual Return (RAR)||13.38%||13.17%||-0.21%|
Estimated pre-tax returns are calculated by taking a lender portfolio of $15,000 fully invested over a 36 month period with the following weighted average portfolio assumptions:
Pricing as at December: Interest rate of 18%, Service fee of 1.25% of Principal & Interest, Annual loss rate of 2.4% of principal, Monthly principal repayment of 7% of principal (3% scheduled repayments + 3% re-wrties + 1% prepayments).
New Pricing: Interest rate of 20%, Lender fee of 17.50%, annual loss rate of 2.4% of principal, Monthly principal repayment of 7% (3% scheduled repayments + 3% Rewritten + 1% prepayments).
The actual return will depend on the underlying performance of the notes in each lender's portfolio. Past performance is no indication or guarantee of future results and the information presented is not intended to be investment advice or a guarantee of performance of a lenders portfolio.
* Note, this increase in fees is largely offset by the increase in Borrower interest rates.
Glossary of terms:
Service Fee - This fee is being replaced as of 13 June, 2016. The Service Fee was 1.25% of the principal and interest payments collected on each note. It will continue to apply to existing lending prior to the introduction of the Lender fee.
Lender Fee - This Fee is a tiered fee charged on the interest only collected on each note. The rate at which is it charged is based on the principal balance the Lender has at the time of investment.
FAQs about the Lender fee changes
When do these changes take effect?
The new pricing structure will go into effect on Monday, June 13, 2016. Upon logging into your account, you will be prompted to accept an amended Investor Agreement and Disclosure Statement.
What impact do the new fees have on my existing portfolio?
The new fees will have no impact on your existing loans. They will only affect new loans invested in the marketplace after the go live date.
Where do I find a historical view of the fees I am paying?
You can identify the fees you’re paying on each loan over time if you click on each individual loan under the Reports section.
How does it work if I am running down my portfolio?
You will continue to pay the same Lender fees on interest based on the appropriate tier at the time a loan was purchased. The Lender fee will not change throughout the lifetime of the loan regardless of whether your principal balance changes.
Who is affected by the fee change?
All Lenders will be required to accept the new pricing changes in order to continue investing on the Harmoney marketplace. The new fees will only affect new loans purchased; not existing loans in your portfolio.
Will this affect my portfolio returns?
The impact to each Lender’s individual portfolio will vary based on a number of factors like their account performance, the number of notes purchased, and the timing of their investments. See theoretical example here.
Why is the new fee structure being introduced?
The new pricing structure is being put into place as a way to keep our interests closely aligned with Lenders while allowing us to operate a sustainable business.
How do I know which tier of fees I am paying right now?
The fees you’re currently paying will be based on the Principal Balance of your account. Or in other words, the total amount you have invested in outstanding loans.
Please refer to the pricing table for more details.
Are the new fees tax deductible?
We expect that fees paid by Lenders will be tax deductible. Each Lender’s circumstances are different, so we recommend that they seek independent tax advice.
Why do Lenders with a smaller principal balance pay more than Lenders with a larger principal balance?
This is a common practice in business called 'quantity based pricing'. Quantity based pricing means that the price of a product (i.e. fees) are dependent on how much you invest. Generally speaking, the more money you invest on the platform, the lower the fees you’ll pay.
If I don’t like the new fee structure, can I exit?
Our Lenders are free to choose whether they continue investing on the Harmoney marketplace at any time. The amortising nature of the loans purchased on the marketplace means that Lenders have the potential to receive a substantial amount of their capital back with each borrower repayment. These funds can be reinvested into new loans or withdrawn back to the Lender linked bank account.
Are the new tiers dynamic?
Yes, the pricing tiers are dynamic, although Lenders can only move up or down into a new tier the following business day (not intra-day).
Are you going to continue actively marketing to Borrowers to rewrite their loans?
Harmoney plans on continuing to offer our most creditworthy borrowers the chance to top up their loan up to their approved limit after at least 3 months of full payment history. This is a standard practice in consumer lending, as it is rewards Borrowers for consistent repayment behaviour, ensures that Harmoney creates a long-term relationship with that customer, and encourages that customer not to look elsewhere for their borrowing needs.