Break Cost Fixed IO

Discussion in 'Loans & Mortgage Brokers' started by salz, 25th Aug, 2015.

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  1. salz

    salz Active Member

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    All,

    Anyone please shed light how is break cost calculated for fixed interest loan? I understand Banks use Bank Bill Swap Rate (BBSR) to calculate your early repayment cost.

    Took 3 year fixed IO PPOR loan (500K).. with 4.74% .... 2 year left in fixed period. product does not fit my purpose so cutting my loses.

    I am surprise to see my break cost increased by 1k in last week without changing anything in interest.
    Last week it was $4850 and today $5800 not including other charges (discharge fees $500 + legal cost $275)

    Any tips to reduce break cost. repayment of 20K annual limit in Fixed IO hopefully reduce this slightly. Any other Idea?

    Trying to recoup loses using St G Rebate 2k plus reduce interest of 4.19% . I guess I could recoup ard 5K in a year but still a loss of 2 grand.

    Thanks Guys.
     
    salz, 25th Aug, 2015
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    whatever the bank comes back with is how they calc it

    can dispute via FSO, but best of luck

    Have a chat with Steven Ryan who posts here, may have some ideas for you.

    He was in a deep fixed rate pickle
    ta

    rolf
     
    Rolf Latham, 25th Aug, 2015
    #2
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Investment loan or owner occ?
     
    Terry_w, 25th Aug, 2015
    #3
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I was a Money Market dealer in a former life. BBSW (Bank Bill Swap Rate) is the basis for the rate set BUT subject to margins AND bank positions. The payout is also based on net present value / discounted rates of returns (incl margins or an agreed penalty). Basically the customer pays a penalty to compensate for loss. Customers never win. If I was pricing it in treasury today I would probably set a rate at 7%... Customers lose. Think of paying the bank 2.5% pa ayear for the life of the fixed rate deal and then slightly discount is at market. Say 2.0%, If there is a benefit then ignore it. House wins.
     
    Paul@PAS, 25th Aug, 2015
    #4
  5. salz

    salz Active Member

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    Terry - it is Owner Occ loan.

    Thanks others - I will look into Steven Ryan posts. It is just that it got increased by a 1K in a week.
    Any tips to recoup some of the money.
     
    salz, 26th Aug, 2015
    #5
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Terry_w, 26th Aug, 2015
    #6
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