Question on "early repayment" clause of home loans

Discussion in 'Property Finance' started by sliderc, 29th Nov, 2018.

Join Australia's most dynamic and respected property investment community
  1. sliderc

    sliderc Member

    Joined:
    27th Oct, 2015
    Posts:
    17
    Location:
    QLD
    Hi Guys,

    I wonder if anyone has any experience with the early repayment clause for their loans.

    I am wondering whether "early repayment" applies to selling the underlying asset and paying off the loan in the process?

    Also curious, does early repayment effect refinancing with a different lender, or are there generally other break free fees associated with that?

    Cheers.
     
  2. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

    Joined:
    18th Jun, 2015
    Posts:
    19,064
    Location:
    Remote
    I would think 'early repayment' means paying the loan back regardless of the meaning. This would include refinancing or selling or just paying the loan back with proceeds from bank robberies.

    Most loans these days don't have early repayment fees. They may have break fees for fixed loans and mortgage discharge fees
     
  3. sliderc

    sliderc Member

    Joined:
    27th Oct, 2015
    Posts:
    17
    Location:
    QLD
    Hi Terry,
    I've attached the ANZ brochure on the Fixed Rate loan product which outlines the "Early Repayment Costs". I couldn't see in here anything around selling or refinancing hence the question. From this would you assume that if you sold your property you would be liable for early repayment if your property is supported by a fixed rate loan such as this?

    It does seem to be the case from my understanding also.

    I wonder how many people factor this in or are surprised by this...
     

    Attached Files:

  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    What you're referring to is specific to fixed loans.

    Banks borrow the money for a fixed loan at a certain cost, then add their margin and lend that money to you. Over the fixed period, they have to pay interest on what they borrowed, plus they expect to make a margin.

    If you pay the loan off early (selling, refinancing or significant extra repayments), then the bank won't make their margin and you're charged for that cost.

    How much you're charged is a function of the difference in rate rates between when the money borrowed vs when it was paid off, and the time remaining on the fixed period.

    It's not quite that simple so you have to contact the lender to know what the fee would be.

    As a guide, if rates are higher than the fixed rate, you probably won't have to pay anything. If rates are now lower than the fixed rate, you will likely have to pay some money.
     
  5. kr11

    kr11 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    96
    Location:
    sydney
    how about the non bank lenders like pepper, liberty, la trobe etc
    do they have any hefty fees for paying the loan early?
     
  6. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

    Joined:
    18th Jun, 2015
    Posts:
    19,064
    Location:
    Remote
    Early repayment fees are prohibited under the NCCP Act.
     
  7. Possumcreek

    Possumcreek Well-Known Member

    Joined:
    28th Apr, 2017
    Posts:
    82
    Location:
    Wangaratta, VIC
    As Peter said above if the interest rates have gone up since you fixed the loan there will probably be no break fee. Just ring the bank and ask for a payout figure and whether there would be a break fee owing.
    I did that last week. As my loan was fixed at 3.88% there was no break fee for early pay out.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    This applies to fixed loans and you'll generally find it applies to fixed loans with all lenders.

    It does not apply to variable loans with any regulated lender. Lenders are not allowed to charge early repayment fees on variable loans against residential properties. This was outlawed around 2011.
     
  9. Jamesaurus

    Jamesaurus Well-Known Member

    Joined:
    18th Dec, 2017
    Posts:
    247
    Location:
    Canberra
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    d_walsh likes this.