Cut of fixed rates, will my break fees increase?

Westpac and her daughters are cutting fixed costs by 0.2% tomorrow.
Does this mean my costs to break my current fixed loans are likely to increase tomorrow?
I thought that was the case, but a broker I spoke to, said no and getting the answer out of St George has been a similar experience to asking a magic 8 ball the same question!

 

A break fee is only incurred if you break the loan term. So no it wont impact you and is optional. But if you break your fixed rate then the wider spread of .20% may apply making the cost higher. Depends on many factors
- Present term of fixed rate
- Loan balance
- Present market rate (PMr) for that term v your present (fixed) rate (PrFr). If PMr=> PrFr then a break cost may not apply)
- Discount factor

The way the break cost is calculated doesnt directly factor to the present rate as the term may be different (eg you are 2 years into a 3 year fixed, so the 2 year rate may be relevant). You can ask the bank for the formula and the applicable rates.

 

Interesting, thanks!
So given that I've got 11 months left, if the 1 year rate doesn't move, the break costs shouldn't change much?

 

The calculation of the break fee is normally related to the current variable rate. i.e. if you break your current fixed rate and the lender is theoretically going to re-lend the money to someone else at the current variable rate for the remainder of your fixed term, how much would the lender be out of pocket? If you contact the lender, they need to advise what the current break fee would be, but it can change on a daily basis.

 

Its generally the rate that remains for the term remaining eg If a 2 year is broken at one year the reference rate will be the one year rate - for the same retail product. The reason is that the internal reference rate used is bank bill swap + the retail margin for the loan product. Sometimes that reference rate "spread" can be wider or lesser than when the loan was truck. At present fixed rate loan competition is seeing the spread narrow and the rate fall. Neither "helps" a break cost. For residual terms under 12mths the variable rate may be used or the bank may even use the 12mth...depends on the bank policy and what was agreed in the loan contract. A common one is 11mths. This is likely to be priced at the higher of the variable or the 12mth rate but policy may stop using the 12mths at under 9mths. It just depends on policy. I used to work in financial markets for a big 4 bank and would assist to set rates. Banks are happy to provide full supporting info on request incl the formula and numbers used. And pre-quote the actual break fee.