Are there any pitfalls to breaking fixed loan term?

Hi All,

My bank called me and asked if we wanted to break our fixed loan which has one year to go(30yr loan), the rate is 2.99% the break cost is about 6k and he said we could get a loan for 2.19%, we owe just under a 1mil, purchase was 1.5mil. Are there any things we need to look out for when breaking the fixed loan or is it just simple we would save some $$$? sorry it's our first property and not that accustomed to loan structures. We thought if they redo it, we don't want them to put it back to 30yrs, and thought maybe do it for 25yrs, we purchased in 2017 and have it rented out, and we'd probably like to stay variable with full offset.

 

Work out how much interest you would save assuming the rates remain the same for the next year. If that is bigger than the break cost you might be ahead.
Did the loan have an investment use? If so the break fee might be deductible in full this year (or part) which adds to the savings.

Why wouldn't you want it back to 30 years? especially if it is an investment loan.?
Do you have enough cash to fully offset the loan? If so where is the cash now??

 

Breaking a fixed rate won't reset the loan term.

$1M x 0.8% saving = $8,000. The savings appear to be worth the break costs.

 

I highly doubt it will be 2.19% for investment loan from any of the Big 4.

 

that sounds like another fixed rate

 

A refinance to other lender may get you additional upto $3000 as cashback (minus the $500-$1000) refinance cost.
But as @Gen-Y said, you won't be able to get 2.19% for investment loan. It'd be around 2.49% mark.

 

It's an investment property that we rent out to tenants, oh I didn't know we could claim the break cost as a deduction, they might be good thanks.
It's an owner occupier loan, I'm not sure what you mean by make it 30 yrs again. We paid a lump sum off a couple of months ago, about 50k off the principal.

 

thank you.

 

that sounds good thanks.

 

Are you talking about 2 separate loans here?

With investing it can be a good idea to set yourself up with a long loan to minimise the minimum repayment as this can help with serviceability and tax savings but also allows you to pay extra if and when you choose.

 

Sorry for confusion, it's an investment property with an owner occupier loan. We are keen to get the balance down and thought if it goes to 30 years again we will end up paying more interest? We want to sell it in a couple years and buy a bigger house then move into it ourselves, at the moment we rent it out, as we can't afford the repayments and live with family.

 

My husband said the broker told him 2.09 but it was fixed, he said best he could variable would be 2.88, time to shop around.