Question on "early repayment" clause of home loans

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.

 

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

 

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...

 

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.

 

how about the non bank lenders like pepper, liberty, la trobe etc
do they have any hefty fees for paying the loan early?

 

Early repayment fees are prohibited under the NCCP Act.

 

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.

 

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.

 

Nearly as good as the Westpac explanation of their costs:
"∑[i*Badj +Badj -Badj]* dƒt -(CB-UT)-∑[i*Bnew +Bnew -Bnew]* dƒ t-1 t-1 t t-1 t-1 t t -(CB-P)"

Everyday punter can understand that right?
source:
https://www.westpac.com.au/content/...-things-you-should-know-about-break-costs.pdf

 

That's why the advice on break costs is always the same: Call the bank to get the figure.