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Westpac loan assistance

Discussion in 'Property Finance' started by speakerscreen, 5th May, 2016.

  1. speakerscreen

    speakerscreen Member

    Joined:
    5th May, 2016
    Posts:
    5
    Location:
    Sydney
    Hi

    Looking for some assistance with the following situation as follows:

    1. Purchased house in 2013 for 800k, probably worth about 1.3 to 1.5m now. it is an investment
    2. Borrowed 700k with Westpac
    3. Loan portion is split with 400k fixed at 5.69% (currently has 2 years left and break fee is 11k) and the other 300k is variable at 4.72%. The variable component is being fully offset and I am currently paying no interest on the variable loan.


    With the fixed, I have about 350K owing (with 30k in the account). I am undecided whether I should break this loan, as I think i will be able to pay it off quickly over the next 2 years and would save on interest (but can only claim as a deduction over 5 years). The 11k fee to break was obtained last saturday and is valid till Friday, so probably the break fee if calculated now would be more due to RBA cut (but I can still take the 11k quote if I want till Friday).

    Also, if I was to break, what rates should I expect and what lender would be best to go with (probably looking to purchase something else in 2 to 3 years time, not immediate).

    Any assistance appreciated.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Your break fee is $11k. In my experience the rate savings aren't as much as the break fees at any given time, so there's not a compelling reason to break a fixed loan. As you've indicated this doesn't give consideration to future rate cuts however.

    Also think about how much other cash you've got which might be used to offset the existing fixed loan. If you've got more spare cash than what's already offseting your variable loan, this money could be used to reduce interest on the current fixed loan which would increase your savings and possibly make breaking worthwhile.
     
  3. speakerscreen

    speakerscreen Member

    Joined:
    5th May, 2016
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    Location:
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    Hi Peter

    I estimate that I could put another 50k on the fixed loan within say 6 months.
     
  4. neK

    neK Well-Known Member

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    What are the alternative uses for the $50k? Eg deposit on another ip?
     
  5. wylie

    wylie Moderator Staff Member

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    I like this idea. Two years will go quickly, and $11k penalty is a big hit just to save some interest.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
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    Location:
    Melbourne, Nationwide
    Work out:
    Interest you'll pay over the remaining fixed period if you continue with the loan as it is.
    Interest you'll pay over the remaining fixed period if you break and pay lower rates, on a loan amount about $50k less than you current owe.

    If the second option is cheaper by more than $11k, you'll save mony by breaking (assuming nothing else changes in the meantime).