Breaking a fixed term loan

Discussion in 'Loans & Mortgage Brokers' started by Abooking, 3rd Apr, 2017.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Abooking

    Abooking Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    126
    Location:
    nsw
    2 yrs ago I fixed a 5 yr loan at 4.59% using my IP as security. The current loan balance is 250k.

    Early next year Im thinking of putting it on the market. If I sell the house and break the fix term loan contract with 2 yrs to go does anyone know aprox' how much the break fee would be if its based on the assumption that rates haven't moved at all by this time next yr.

    If rates do move upwards in the next 12 months I presume this is better for me? How do they calculate the break fee?

    Many thanks
     
  2. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    4,752
    Location:
    Here!
    Every bank is different. I've had some big loans before that cost peanuts to break out of (which is always a surprise), but some times they are really expensive. It's worth checking, as you won't know till you ask.
     
    kierank likes this.
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,977
    Location:
    Canberra, Brisbane and Sunshine Coast
    You need to give your bank a buzz and ask - they're the only one that can provide an accurate figure.

    Cheers

    Jamie
     
    Perthguy, Joynz and kierank like this.
  4. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Like @jaybean and @Jamie Moore have posted, each bank is different - so you need to call them.

    I was doing some scenario planning late last year. One of my options was to sell an IP and break a fixed rate loan.

    I phoned my bank (Suncorp) and they gave me an approx figure immediately over the phone. They said if I wanted an accurate figure, I should phone up on the payment due date. I was only after an approx amount.

    Your bank could be different.
     
    Perthguy likes this.
  5. Marg4000

    Marg4000 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,377
    Location:
    Qld
    The payout figure will usually be at least partly based on the difference between the fixed rate and the current rate ON THE DAY that you break the loan. The bank can only give you an estimate beforehand.

    And yes, if rates rise that should reduce any payout figure.
    Marg
     
  6. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Perthguy likes this.
  7. Redom

    Redom Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    4,607
    Location:
    Sydney (Australia Wide)
    They will calculate on based on amount of time till maturity + current rate vs market rate (and other factors).

    Indicatively, i'd expect it to range from $0 to ~$3750 (0.50% (rate differential) * 3 (time left) * 250k (loan amount)).

    If rates move up, the 0.50% figure will drop down. The longer you wait, the 3 year figure will drop too.
     
    Marg4000 likes this.
  8. Colin Rice

    Colin Rice Mortgage Broker Business Member

    Joined:
    9th Jul, 2015
    Posts:
    3,183
    Location:
    Perth
    The bank wants to recover all or part of the interest it would otherwise have collected if you let it run the full 5 year term. At 4.59% fixed you will be up for some break costs but as stated call bank to check what you are up for and allow for it in your calcs.
     
  9. Abooking

    Abooking Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    126
    Location:
    nsw
    your answer was the most accurate and helpful. I called the bank and the break fee would be $3875

    thanks
     
    vira17, Perthguy, Marg4000 and 2 others like this.