Can break fee be capitalised?

Discussion in 'Loans & Mortgage Brokers' started by property_geek, 4th Mar, 2020.

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  1. property_geek

    property_geek Well-Known Member

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    Hi,

    Breaking out from fixed rate loan, how break fee is paid? Is it added to loan amount so that new loan amount is now bigger?

    What happens on refinance? Does payout figure include initial loan amount + discharge fee + break fee?

    Or do I have to pay those fee from my pocket as cash?
     
  2. Morgs

    Morgs Well-Known Member Business Member

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    If you're refinancing you will need do make sure the new loan size is large enough to accommodate the break cost and treat it as an equity release / cash out. Also need to make sure there is enough equity in the security.
     
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  3. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Depends how the loan is set up. Break costs can vary, so even if the loan was originally set up to cover break costs, the reality is that if the rates drop during the application process, you may still have to contribute funds to settle.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    speak to your tax advisor too if its an IP loan

    ta
    rolf
     
  5. Terry_w

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

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    Yes you can borrow for it and it could be deductible
     
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  6. property_geek

    property_geek Well-Known Member

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    Thanks @Terry_w It is deductible only if refinancing IP loan. But if refinancing home loan it is not deductible. Is that right?
     
  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The USE of the borrowed money is the key test. Not what security is used. You need to consider how the funds were all used originally and not consider what the present property use is. If the home loan was used to fund IP depoits then it could be deductible in whole or in part.
     
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