Breaking fixed term loan due to sale

Discussion in 'Loans & Mortgage Brokers' started by Shawn, 10th Feb, 2023.

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  1. Shawn

    Shawn Well-Known Member

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    Hi there Brains Trust,

    Bit of an interesting one that I'm racking my brains on.
    Thinking of selling an apartment that we have that is an IP.

    It's currently on a 1.94% fixed term loan expiring in August 2023. All the documents I've read mention that they compare the Wholesale Swap Rate at the time I initiated the loan against today's Wholesale Swap Rate. In this case, I'm almost certain the Wholesale Swap Rate at the time I commenced the loan was lower than the Wholesale Swap Rate today... does this mean that I don't owe the bank anything or that they will pay me ?
     
  2. wylie

    wylie Moderator Staff Member

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    Doesn't the current situation simply mean that instead of you paying a penalty to break a fixed loan early, you will be able to break without paying a penalty?

    I doubt the bank would owe you anything, but at least you shouldn't have to pay them anything.

    That's my understanding anyway. I've just broken five loans, no cost to me. Someone I know broke a loan a few years back and the penalty was around 20k but they locked in a very low rate and that penalty was recouped within 18 months at the new rate. It still hurt though to have to pay it.
     
  3. Terry_w

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

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    Likely no break costs. You can just ring up and ask
     
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  4. Shawn

    Shawn Well-Known Member

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    Amazing ! Thanks @wylie and @Terry_w
     
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  5. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    With such a short term remaining on fix and also fixed rates are nearly 3 x compared to what yoire currently on, I would suspect the break cost to be $0.

    But yes ring up for a breakcost
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    You'd be doing the bank a favour.
     
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  7. Shazz@

    Shazz@ Well-Known Member

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    Just a suggestion- as it’s really tough getting a loan in these times, consider not closing the loan, but swapping the security (if you can).
     
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  8. strannik

    strannik Well-Known Member

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    yeah i wouldn't break the loan unless the bank tells you you have to. if you have another security with higher interest variable loan, consider just swapping them
     
  9. Biffnar

    Biffnar Well-Known Member

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    What if you settle after fixed loan expires?
     
  10. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Correct as the bank will make more money from those funds in a nonfixed environment so they dont have to recoup any losses from you.

    It's an interesting concept that they do owe you a share of the released funds that they will derive a profit from going from a fixed-rate circa 2% to 5%+ environment at the same wholesale cost as the original funds.
     

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