All Topics / Finance / How to break a fixed rate exit fees

Viewing 20 posts - 1 through 20 (of 45 total)
  • Profile photo of dbomberdbomber
    Member
    @dbomber
    Join Date: 2012
    Post Count: 3

    This is not an investment property prob, but I hope u/somnone can help.

    I’m stuck in a fixed rate on my home that I took in July last year. The rate is over 7% and I’m not even half way through. The bank told me that rates could rise and the fixed rate was a good deal.

    Now i want to switch and their quoting a brake charge that makes it impossible for me to do. I though they can’t charge me an exit fee anymore, but they reckon they can.

    Does anyone have any ideas?

    Thanks,

    Dave

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Dave

    Deferred Establishment Fees (DEF) were abolished last year which was the fee payable if you closed down the loan within a certain period of time.

    Fixed rate break fees continue to exist.

    Your lender is right – they can (and will) charge you for this.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of dbomberdbomber
    Member
    @dbomber
    Join Date: 2012
    Post Count: 3

    Thanx James, so you agree with the bank? Isn’t the brake charge an exit gfee?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    As Jamie mentioned exit fee and fixed rate break fee are two totally different things.

    Dont forget in addition to the break fee they will probably charge a Settlement fee if you leave them.

    So much for Swanny wanting to provide competition and make it easy for borrowers to switch lenders.
    All that has happen is that many have merely said we will charge an upfront application fee instead of an exit fee that way we know we get out money.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    Agree with Richard- the banks will make their money one way or another so I dont see how abolishing exit fees will reduce the costs for the consumer. The banks will either charge higher interest rates or just charge up front application fees. I couldnt see anything wrong with the deferred loan establishment fee as it was pretty clear what it was and what it was for, and they told you right at the start how much it would be- it was hardly hidden in fine print.

    Unfortunately the banks need to charge exit fees for fixed rates, or else everyone would just fix rates when fixed rates are lower than standard variable rates and then refinance when the variable rates fall. You cant have it both (or all) ways!!

    Cheers,
    Luke

    Profile photo of dbomberdbomber
    Member
    @dbomber
    Join Date: 2012
    Post Count: 3

    thanx guys.

    But I am still confused. Were exit fees abolished or not? I thought they were and Luke you seem to say yes and no, but then say I can’t have it both ways, but the bank can?

    Aren’t exit fees what’s charged when I leave?

    Doesn’t abolished mean gone?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Only thing that was abolished was Deferred Establishment Fees as Jamie mentioned.

    You still get charged a Settlement fee with most lenders on the way on and on the way out.

    Break costs on a fixed rate loan are totally separate.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    Sorry I should have said break fee not exit fee when I was talking about the fixed rates.

    Break Fee is to break a fixed rate contract that you had with a bank. Because you are breaking a legal contract, you need to pay the break fee that you agreed to when you signed up.

    Cheers,
    Luke

    Profile photo of Luke001Luke001
    Member
    @luke001
    Join Date: 2012
    Post Count: 2

    Hi Dave,

    I'll try and make this as clear as possible for you.

    Firstly, you are not the only person to be "caught out" like this. It doesn't really matter whether you went through a bank or a broker as the majority of them out there do not clearly explain what you need to know about your mortgage. They are just happy to get your business.

    Nothing has changed in regards to fixed rates. There always has been a break fee to a fixed rate if broken early. The break fee is calculated on your loan balance and takes into account the time remaining on the loan. So if you were to wait say another 6 months the break fee would be different (usually less) than today.

    It can be easy to confuse fixed rate break fees with exit fees. However they are not even remotely the same.

    An exit fee was applicable when either a loan was paid out in advance or refinanced with another lender. The abolishment of exit fees was introduced and intended to help make the playing field a little easier for home owners and investors to change lenders and to add "pressure" on lenders to offer their customers better deals on their loans. It's obvious that this has failed.

    Fixed rate break fees are a cost that any lender will charge you for breaking your agreement with them. (Have a look through your mortgage documents and you will find a clause stating this) When you agree to a fixed rate you are basically saying that you will remain a customer with that lender for X amount of time. If you break this agreement the lender will charge you for losses in interest payments that should have been made according to your agreement. Fixed rate break costs have absolutly nothing to do with deferred establishment fees or exit fees and do not account for them now that they are no longer applicable. That's not to say that a lender may add some more icing on top for themselves! But who knows – right?!

    Depending on your objective for your property it still may be worthwhile to break the fixed rate IF, and it's a pretty big IF, you will be better off financially in the end. It all depends on what you want to achieve with your property. Is it investment or owner occupier? Do you want to pay it off or not? Why did you go fixed just last year and for how long did you fix for? Why do you want to change?

    Too many questions to add in here!

    I hope this is clearer and helps answer your question.

    Luke Goodman.
    Mortgage Specialist
    Ph: 0414 539 055

    Remember this – anyone can buy property. But the structure and purpose of the loan can either work for you or against you.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    I'll keep it very simple.

    Yes – fixed rate break fees still exist.

    Yes – you will have to pay it if refinancing.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of v8ghiav8ghia
    Member
    @v8ghia
    Join Date: 2005
    Post Count: 871

    Hi dbomber,

    Just to clarify, and at a bit of balance to a couple of the comments……
    A fixed rate loan is different to a variable in that is it a fixed contract between you and the lender at an AGREED amount – that you entered into by choice.  A variable rat loan, is a 'floating' rate.
    When you get a fixed rate loan, essentially by way of example, you say "MR Banker, I want to borrow $200,000 for X amount of time for 7% and I promise I will pay you back at this amount. The Bank/lender does NOT have the funds for this type of loan – it is sourced from 'the money markets' rather than customer deposits. SO……Mr Bank says to all the rich people……..'Who wants to lend me $200,000 at a guaranteed return of 6% for x amount of time?' THey get this, and then make their 1% in this example. If you decide to break your promise/contract before it is due (the X bit) the bank then in turn has to break theirs' Obviously if rates went up to 8% you would not want to break your contract *unless you are selling or due to unforseen circumstances)  So if in the above example, both rates were 1% less, the bank still has to pay it's agreed amount to where it got the money from, and naturally so do you.
    Hope that makes sense. SInce the GFC inparticular, you would be hard pressed to find any lender (including non bank lenders, who are much more restricted with this type of funding ) that will not ensure you have full disclosure of this, including information, brochures etc explaining how break costs work.
    Trust me, if your loan is just over 7% it would only be recently that rates have dropped below that. How much money have you saved in the meantime?
    Theoretically now is a good time to fix a loan for a few years for buy and hold properties as historically they are getting as low as they have been in 5 or 6 years. Then again……..

    Re other costs ANZ and NAB don't have early exit fees, but all lendere will have discharge fees – it is an expense, and generally around $350, or more than that for credit unions etc. (attending settlement, paperwork, registration etc)

    Cheers

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

    You took a gamble when you took out your fixed loan and at this stage it has gone against you. Now you can either wear it and hope rates will rise or break the fixed loan and pay the penalty.

    If you do break the loan then the break fee may be deductible in the year it is incurred if the loan is investment related. This will ease the pain a bit.

    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 Michael.LeeMichael.Lee
    Participant
    @michael.lee
    Join Date: 2009
    Post Count: 106

    Hi Dave,

    You have every right to be confused. Besides you, Luke001 is the closest to the complete truth – i.e. that borrowers get caught out by the contradiction and misunderstanding.

    The broker responses here demonstrate why this is such a problem. Although many now claim Break Costs on Fixed Rate loans are not Exit Fees, it is widely acknowledged that they are. Banks and brokers trot out a different line to keep themselves out of trouble when people like you start asking for a refund.

    Break costs on a Fixed Rate are an Exit Fee as are Discharge Fees.

    The issue here is that you and many other borrowers have been left in the dark – although it was promised that Exit Fees were banned outright, only one particular type has been. Everything else is smoke and mirrors.

    I am aware of borrowers that have had their break fees on Fixed Rates waived or reduced., and if you have been duped, I think you should go after yours as well.

    <moderator: delete language> Others trying to make a fool of you can only succeed if you let them.

    Cheers,

    Michael

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Yes i can see why the confusion.

    Whilst Michael might believe in his own heart that Break Costs on Fixed Rate loans are not Exit Fees, it is widely acknowledged that they are unfortunately the legislation disagrees with him

    The National Consumer Credit Protection Amendment Regulations 2011 became law on 23 March 2011. These regulations amended the National Consumer Credit Protection Regulations 2010 by banning lenders from imposing 'back-end' charges payable on termination of home loans entered into after 1 July 2011, such as deferred establishment fees or early termination fees. The banning of exit fees further extends previous federal amendments in 2009 requiring lenders to advertise comparison rates.

    This is not a blanket ban and it only applies to loans secured by residential property. The ban is limited to credit fees or charges and does not cover break fees, for early repayment of fixed-rate loans or discharge fees that cover reasonable administrative costs of terminations. Crucially, it only applies to loans entered into after 1 July 2011.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Dave,

    Not sure of your whole situation but you really have two options. Do the maths to see which one works for you.

    1. Stay wear you are and wear the costs.
    2. Pay the costs and move on.

    If you cannot do option 2 then I would suggest your only option is 'learn the lesson' and carry on. Worst case scenario is you know what your commitments are for the balance of your fixed loan and can budget accordingly.

    I tend to have half of my portfolio fixed at any one time. This seems (and I use that word deliberately) to give me the best of both worlds.

    If I go back and analyse my overall strike rate I am probably batting around 50% – half the time I have come out in front and the half not so good.  In saying that I have been able to focus on a bigger picture without worrying about what the RBA does each month.

    EDIT – I know someone who claims to take 10yr fixed rate each and every time they buy a property. Mind you he is very commercial in his property investments. His reason "I do the maths, lock in contracts and set and forget" – seems to work for him.

    Profile photo of Michael.LeeMichael.Lee
    Participant
    @michael.lee
    Join Date: 2009
    Post Count: 106

    Sorry Richard, you seem to be confused. What I said was:

    Michael.Lee wrote:
    Break costs on a Fixed Rate are an Exit Fee as are Discharge Fees.

    My reference to others who incorrectly say otherwise which creates the confusion includes you:

    Qlds007 wrote:
    As Jamie mentioned exit fee and fixed rate break fee are two totally different things.

    They are not totally different things as you have stated and it is this misinformation from banks and brokers like you which fuels the confusion.

    In fact SLI 2011 No. 40 which is the bill to which you are referring specifically identifies both a discharge fee and a break fee for a fixed rate loan as Exit Fees for the purposes of exempting them from the ban.

    The real issue is that the Government has claimed to have abolished Exit Fees outright, when its legislation still allows certain Exit Fees, including of course, Break Costs.

    This in essence makes the Government claims that is has banned Exit Fees an outright a lie and arguably in some cases makes those Exit Fees recoverable.

    Your decision and others like you who have jumped on the bandwagon to support a Government lie further fuels that confusion. If anything, I would have thought an person truly acting in the interests of the borrower would be going up against the Government on this one instead of trying to re-write common language to cover up a lie at the borrowers expense.

    Michael

    Profile photo of Michael.LeeMichael.Lee
    Participant
    @michael.lee
    Join Date: 2009
    Post Count: 106

    Gidday yourokcproperty,

    I agree with your basic sentiment that disclosure is the issue, not the fee itself.

    Nonetheless, this is why it is such an issue that the Government, Banks and certain Brokers are insisting that Exit Fees are abolished and that certain fees historically and commonly understood as Exit Fees are, since the ban, somehow no longer Exit Fees.

    It obviously confuses the issue and lulls at least some borrowers into a false sense of security as the "outright ban" is not outright at all.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Michael

    Thanks for the input.

    To be honest – I think you've confused matters even more.

    The original poster asked a pretty straight forward question –  if he'd be charged a break fee on his fixed loan (as indicated by his lender).

    The answer is a fairly simple one.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of gibbo1gibbo1
    Participant
    @gibbo1
    Join Date: 2008
    Post Count: 152

    Without a break fee, banks wouldn’t be able to offer fixed rates. Over a period of time the bank expects the fixed rate to balance out. If a consumer could get a cheaper fixed rate now and then change to a cheaper variable rate in the future without penalty…why would banks offer the cheaper fixed rate.

    For some people fixed rates are an insurance policy for certainty. Others either take a gamble/educated guess on what rates will do. Sometimes they get it right and pay less in the long run, sometimes they get it wrong and pay the price (either higher interest rate or break fee)

    The banks said the rates could raise, an agreement was entered into. To break the agreement, there is a fee payable.

    Profile photo of Michael.LeeMichael.Lee
    Participant
    @michael.lee
    Join Date: 2009
    Post Count: 106

    Thanks for the feedback Jamie, but there was more than one question and I think the others are more important.

    dbomber wrote:
    Thanx James, so you agree with the bank? Isn't the brake charge an exit gfee?

    The answer to this question seems to be that you side with the Banks and the Government on this and that's fair enough, however I see things differently because I'm a squarely on the borrowers side.

    I believe for example, that if a person is misled on entering an agreement then they ought be able to get out of that agreement on equitable terms i.e. those who did the misleading should foot the bill.

    If dbomber didn't fully understand what he was getting into and he relied on information from the Government (as it appears), plus information from his bank or broker (which appears to be inadequate) then don't you think those professionals have a case to answer (the Government for sure).

    As a broker who deals with this stuff day in and day out, you appear to have lost touch with how overwhelming mortgage selection is and the abundance of information that is dumped on prospective borrowers from marketing through to disclosure documents.

    This leads most people to rely on basic information delivered by banks, brokers and now that it has become such a big player in all this, the Government.

    The Government claims to have banned exit fees outright. Break costs are an Exit Fee. If you or anyone has any evidence that either of these things are wrong, post it. Otherwise we should be honest and stick with the facts.

    If on top of those facts, dbomber entered into a fixed rate believing those facts, regardless of how naive others may think this to be, it's not right the he or anyone else finding themselves in his position should foot the bill. Those who knew better and claimed to be helping/protecting him but did not are the ones that should pay the price.

Viewing 20 posts - 1 through 20 (of 45 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.