All Topics / Finance / Fixed Rate Break Costs

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  • Profile photo of brahmsbrahms
    Participant
    @brahms
    Join Date: 2004
    Post Count: 485

    I know each situation varies, but can someone provide a general straight forward description of how break costs are calculated.

    cheers

    brahms

    If you don’t ask, the answer is no!!

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Good explanation.

    All of the banks should actually pay you out if you break a low rate!

    Cheers,

    Simon Macks
    Mortgage Broker
    http://www.mortgagehunter.com.au
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Pisces,

    I have heard of people being paid under these circumstances – though not lately.

    Cheers,

    Simon Macks
    Mortgage Broker
    http://www.mortgagehunter.com.au
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I have a fixed loan on a property that I was thinking about selling recently. As the rates were moving, I was ringing the bank to get the break costs and they varied from $5000 to about $1000 depending on the interes rate at the time.

    There is a complex formula they use and I think it may even be in the mortgage documents. You could ring the bank and just ask for a figure or they may even be able to give you the actual formula.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of brahmsbrahms
    Participant
    @brahms
    Join Date: 2004
    Post Count: 485

    thank you all, nice rule of thumb there iambored, appreciate your reply.

    cheers

    brahms

    If you don’t ask, the answer is no!!

    Profile photo of Nat RNat R
    Member
    @nat-r
    Join Date: 2004
    Post Count: 224

    They use a term called ‘full economic break costs’ which roughly translates to :

    If I lend you $100,000 at 9% for 5 years and after 2 years you break the loan and I can only relend the money back out at 6% then you owe me the present value (PV) of 3% on $100,000 for 3 years.

    Profile photo of AdministratorAdministrator
    Keymaster
    @piadmin
    Join Date: 2013
    Post Count: 3,225

    I posted and said that I found it hard to imagine a bank paying a borrower for paying out his loan early.

    I subsequently deleted the post.

    MortgageHunter, I still find it hard to believe.

    However, if you say that it has happened I have little or no choice other than to unconditionally accept what you say.

    Brahms, if you at present have a fixed interest rate loan you should find the formula described in your conditions and terms of the loan.

    If you don’t then I suggest you go to (for example) a St George branch and ask for their (free) booklet on terms and conditions of a home loan. This will give you some idea what sort of formula is used.

    However, each lender is likely to have their own type of formula.

    Pisces

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