Breaking a Fixed Term Mortgage

Hi Everyone - I've been referred to this website, so I hope I have posted in the correct spot. I'm wondering if anyone has been in a similar situation or has any advice for myself and my husband,
In 2013 we purchased our first home on the Gold Coast - it was suppose to be our forever home but life happened and after a few relocations we now live in Tasmania where my husband has a permanent job. This house has been rented out since November 2014.
Ideally we would love to purchase another home down here in Tassie, but our mortgage is on a fixed term until July 2018. We could of course use the equity to purchase a second house but really we don't want to continue being landlords, its something that was just a means to an end. Plus it would take more years of building up equity in the GC home before we could sell it anyway.
I've spoken to the bank today (CBA) who offered us no help whatsoever - in fact I have an appointment at our local branch on Friday and I will be mentioning this persons extremely poor customer service - he was rude, arrogant, condescending and lots of other words too!
What I was asking was whether or not there could be any negotiating of the breaking cost, I mentioned our second mortgage would be higher than our current one and that we would be happy to keep all of our business with CBA (we have mortgage, current accounts, credit card, savings and insurance all with CBA).
He basically said that the breaking cost is final, no negotiating. He also said in 7 years of doing home loans he has never heard of anything of the sort and if I've been told other banks do it then perhaps I should go elsewhere for my next mortgage!

The loan term was fixed for 5 years and the breaking costs I've been quoted are $10,500.00.
So - what are peoples thoughts on this? Am I being unreasonable? I find it difficult to believe that our situation is unique and considering the amount of money they would make off of our second long term larger mortgage, I was honestly surprised at the reception I got.
Thanks for reading

 

Can you substitute security or transfer the loan to the new property?

Or speak to a mortgage broker about a new loan on the new property. If you get a good deal it may be worth paying the break fees to get cheaper costs going forward.
Marg

 

In my experience "the breaking cost is final, no negotiating".

 

Oh my goodness at the cranky pants CBA guy!

Best thing to do here is substitute the property. If the QLD property sells, you can secure the current loan with cash from the sale until you find a new home, and once you do, release the cash and replace it with the new home.

Maybe find a better CBA contact to help you - that guy sounds awful and probably won't have a clue what you're talking about. In fact to be honest it's possible quite a few branchies won't.

 

Thanks Jess - I knew there must be a better way to do it!! He actually mentioned something about "loan portability" but his explanation of it was that the new and old house needed to be both settled on the same day which would make it really difficult, and in addition I would need cash upfront for the deposit on the new house. I will see how I go on Friday and hope I get someone who is clued on. If not, perhaps I will get in touch with our mortgage advisor who did the loan for us in the first place.

Yep this guy at CBA was a real treasure - he also told me that he had had plenty of wealthy people who had millions of dollars worth of investments with CBA and they still had to pay breaking costs, so in other words my measly business was worth nothing to them anyway. Eye roll.

 

Yeah, I do not think they are going to negotiate break costs, they are in business and have a contract with you, and I also think that yes, if you had more business with them, they would probably take the same stance.

I do not know if there would be much in it for any of the brokers here, but maybe look closely at swapping security, or, negotiate harder when your buying so the 10k becomes less of a hurdle, or, see if you can get a second loan from them and use that and another lender to buy, stay a LL for a few more years (Gold Coast is supposed to be in a growth phase) sell when it is no longer locked or at the top of the market.

Oh, use a broker, don't bother with the banks.

 

Loan portability when replacing a house with a house is difficult b/c of the simultaneous settlement, which is why securing with cash makes it a little bit more flexible.

 

Emma R, do you have the name and position of that person?

I used to work in a bank and I would suggest you write a complaint email to CBA (using their online forms). Don't feel bad about it because you are totally entitled to as the behaviour of that staff was not inline with CBA's ethos and image. CBA would be happy to see your email and the name of that person.

What would happen next is a complaints customer representative will call you and try to understand what happened. Generally they will try to evaluate your concerns and see whether they can assist you.
If they can't they will forward you to someone who is quite experienced in handling your product or to the product team who are authorised to make policy calls - most of the time they will be able to give you a definitive answer.

In terms of your situation, I don't think they can 'port' your new security to your existing loan as they are separate assets and liabilities. Also, system wise, it would be impossible to amend your loan without incurring the system screaming out ' breakcost '.

The only possible way would be for the bank to reduce the 'breakcost' is to rebate you part or all of the money when you sign up for the new loan as an incentive.

 

Break while it is tenanted and the cost may be deductible - seek tax advice.
Tax Tip 29: Timing the breaking of fixed loans Tax Tip 29: Timing the breaking of fixed loans

Or

Substitute security and keep the loan as is.

 

When most people think of security substitution, by default they assume a simultaneous settlement of a sale and purchase. It doesn't need to be that way.

Scenario 1: If you purchase another property first, use a variable loan and substitute the fixed loan with the variable when the Gold Coast property sells.

Scenario 2: If you sell the Gold Coast property before buying, take Jess' suggestion of securing the fixed loan against the cash from the sale and then use it for the later purchase. Not ideal but it makes the best of a bad situation.

I've done both of these scenarios for clients, they're quite possible. Scenario 1 is fairly straight forward. Scenario 2 is trickier but achievable, you simply have to find the right person to assist and be persistent.

 

You can substitute the security without affecting the loan, because you're not actually doing anything to the loan itself. It's not being touched. The security is though - you can do what you want to the security as long as the loan doesn't change.

As Peter said, it's just a matter of thinking outside the box and having the right people helping you. Can be frustrating but for a $10k saving, it's likely to be worth it.

 

Thanks everyone for your generous advice - I have contacted the mortgage advisor whom we used for the loan in the first place and have a phone appointment with her tomorrow to talk through these options! I'll be keeping the Friday appointment at the bank too, mainly out of interest to see what they say etc. I have also decided I'll be making a formal complaint about this person I spoke to at CBA.

Terry - I hadn't considered breaking and incurring the cost whilst tenanted with a view to it being deductible. Interesting suggestion, thanks very much! I will certainly be looking into this as well!

 

Breaking will still be painful, but less so. You might also be able to borrow to pay the break fee. And there may be an interest saving by getting a new rate which is lower than the fixed.

 

It may not apply in your case depending on the restrictions of your loan - but we got around a big part of the break costs on our fixed rate loan by taking out the largest possible personal loan and then using it to pay a lump sum into the fixed rate loan. We took the personal loan with the bank our fixed rate was with and they waived the application fee so it ended up costing us very little for the personal loan which we paid out upon settlement of our apartment sale. We did this at the last minute so only ended up paying a couple of weeks of interest at the PL levels and it saved us quite a bit.

I figured this out by asking the bank for the equation they use to calculate the break cost - it will look very complex but if you or someone you know is good with maths you should be able to model how you can reduce your fees. Tricky but doable.