Can I break out of my fixed term home loan?

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Often people lock into a fixed rate on their home mortgages or investment loans.  This can make a lot of sense, as it provides certainty of repayments for a fixed period of time.  It’s effectively “outsourcing” the risk of an interest rate increase, so there’s no surprises down the track. 

But what do you do when you lock in to a rate that seems good at the time, and rates then just continue to go down…  Well, the good news is, you can get out of a fixed rate loan.  The bad news there’s what’s called a “break fee” to get out.  This is a long and complicated formula that the banks use to devise their contractually entitled break fee. (This can sometimes take them a day or 2 to provide back to you.)

But paying your break fee may be the best thing you could do.  Unless you find out what it is, you won’t know.  It only costs you a phone call to find out, & then we can do the maths to see if it’s makes sence to get out and refinancing into something more competitive.

And often it is.  I’ll give you an example:

I had a recent client in Lindfield who’d fixed for 5 years at what they thought was a great rate at the time.  18 months later rates had dropped consistently and they were now paying well above current rates.  Their break costs were $5,400 (ouch I hear you say), but by refinancing with a new lender we calculated over the remaining 3 ½ years they would pay $15,000 less interest.  In other words – their $5,400 break fee saved them over $15,000 in interest, so they’d be $10,000+ better off !  In their case it made perfect sense, and the maths made the decision simple.

Everyone’s circumstances are different, but if you don’t ask the question you’ll never know.  Call us and make an appointment & we’ll do all the hard work for you.  Refinancing out of a fixed rate could save you a bundle.

Call Hugh on 0429-010-146, or Bob on 0411-555-315 to discuss.

Posted in: Interest rates

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