Early repayment break costs on your fixed rate loan
If you've come into some money and want to pay off your fixed rate loan, or you break the fixed term to get a lower interest rate, we charge a break cost. This cost is based on a complex formula, but in simple terms it calculates whether we've incurred a loss as a result of the prepayment or switch.
If you'd like to know what your break cost might be, just contact us and we can give you a quote. This quote is valid until the close of business, the following working day.
Prepayment Costs on Fixed Rate Loans
Are there benefits to breaking my fixed rate home loan?
To get a lower interest rate
Generally speaking, any short-term gain from interest savings may be offset or even outweighed by the break cost. For this reason, you should carefully consider whether breaking your fixed rate home loan is a good idea.
However if a reduction in your regular home loan repayments would make a difference right now, then we can talk you through your options, including alternatives to breaking your fixed rate home loan.
Go to reduce your payments
When I'm selling
If you're selling your home and buying a new one you can often simply transfer the loan, without incurring any break costs.
If you're going to be repaying your loan once you’ve reached settlement on the sale of your home, you may decide to break your fixed rate home loan before settlement, and put the loan on a floating interest rate – paying the break costs you’ve been quoted (remember, a quote is valid until the close of business, the following working day). This will lower the risk of paying higher break costs if interest rates have fallen between the time you got the quote and reached settlement
Read more about selling and your home loan
Can I switch to a lower interest rate if I don’t have the money for the break cost?
It may be possible to add the break cost to your loan, but this could also mean that the total repayments you make over the life of your loan are higher – even with the lower interest rate you're switching to.
We can talk you through this to help you understand how adding the break cost to your loan will affect you in the long term.
Talk to one of our Mobile Mortgage Managers
Some scenarios around break costs
18 months ago John and Mary had a $200,000 home loan with 25 years left in its term, and they signed a contract for a fixed rate of 7% for 3 years. Their regular repayments are $1,414 per month. They now have another 18 months left to run on their fixed rate home loan.
If they break their home loan now the fixed rate break cost will be approximately $14,500.
Scenario 1: Paying off their loan
John and Mary decide to pay off their loan in full because they sell their home, and do not repurchase. The break cost will need to be paid immediately.
Scenario 2: Switching to a lower interest rate
John and Mary decide to break their fixed rate home loan because they want to go to a new lower rate of 18 months at 5.85%. The break cost will need to be paid immediately.
Their monthly regular loan repayment will reduce by $144 per month and they will save approximately $2,592 in interest over the next 18 months.
Scenario 3: Switching to a lower interest rate and adding the break cost to the loan
John and Mary decide to break their fixed rate home loan because they want to go to a new lower rate of 18 months at 5.85%. However they can't afford to pay the break cost upfront, so they decide to increase their loan to cover the cost.
Their monthly loan repayment will reduce by $52 and they will save $936 in interest over the next 18 months. However, at the end of 18 months their loan will be almost $14,500 higher.
The above scenarios are demonstrative examples and do not take into account your personal situation or goals. Every loan transaction differs, so please feel free to contact us to review your specific loan situation.