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Breaking a fixed loan mortgage
Anyone ever done it?


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13 replies to this topic

#1 clm1982

Posted 05 December 2012 - 07:58 AM

Hi Everyone

Is short we fixed our Mortgages a few years ago for 5 years at the time it was a good idea as rates were very high and wanted piece of mind whilst having kids etc but with the GFC rates have plummetted, and wonder whether we should look into breaking the contract and whether it would be worth it or not.

Mortgage 1 - Approx $160k fixed at 7.89% which runs out July 2013.
Mortgage 2 - Approx $290k fixed at 7.25% which runs out mid 2015

I am aware we may need to pay break out fees of $10-20k? not sure how they work out this info, do we need to speak to the bank or someone else?

Ideally we would like to combine the 2 mortgages but as one only has 6 months left on it im not sure whether thats the right thing to do or not.

Can anyone shed some light?

#2 Bluenomi

Posted 05 December 2012 - 08:19 AM

The bank will be able to tell you how much it will cost to break the fixed term. I suspect with the first one it wouldn't be worth it, the amount you'd pay would be more than the interest saved.

#3 Ally'smum

Posted 05 December 2012 - 08:23 AM

I agree that it probably won't be worth breaking the first one. Can you have an offset account attached to the second one and put savings in there to reduce the dollar amount of interest that you pay, rather than the rate of interest? This might be a cheaper option.

#4 pollyjo

Posted 05 December 2012 - 08:31 AM

Definitely worth speaking to your bank.
We re-did our mortgage last year and it cost us $3000 in fees, but we saved $5000 in the first year in interest so it was worth it!  They just add the fees to the mortgage so you don't have to come up with the cash (or our bank did anyway).
Absolutely worth a phone call or two!

#5 clm1982

Posted 05 December 2012 - 08:40 AM

QUOTE (pollyjo @ 05/12/2012, 09:31 AM) <{POST_SNAPBACK}>
Definitely worth speaking to your bank.
We re-did our mortgage last year and it cost us $3000 in fees, but we saved $5000 in the first year in interest so it was worth it!  They just add the fees to the mortgage so you don't have to come up with the cash (or our bank did anyway).
Absolutely worth a phone call or two!



Yep thats what i was thinking, if the break fees end up being covered by savings then it would be worth it. I was suspecting the first one wouldnt be worth it. Just hope that rates stay down for 6 months.

#6 ShopgirlX

Posted 05 December 2012 - 08:43 AM

Maybe speak to a mortgage broker?  They know all the tricks of the trade and can probably work out an arrangement that will benefit you.  I can recommend an excellent guy if you are in Melbourne.

#7 clm1982

Posted 05 December 2012 - 10:13 AM

Well ive called the bank to calculate the fees, wonder what they come back with, will take a day or two.

#8 JECJEC

Posted 05 December 2012 - 10:22 AM

QUOTE (loggedin @ 05/12/2012, 09:23 AM) <{POST_SNAPBACK}>
I agree that it probably won't be worth breaking the first one. Can you have an offset account attached to the second one and put savings in there to reduce the dollar amount of interest that you pay, rather than the rate of interest? This might be a cheaper option.

Generally you can not offset against a fixed rate loan.

#9 Fluster

Posted 05 December 2012 - 10:30 AM

The bad news is that you can't just pay a nominal amount so you can exit a fixed loan and take advantage of lower rates.  The bank has a complicated formula that includes charging you for the difference in income they would receive if you were paying them 8% interest as opposed to 5%. It's not pretty.  Having been in that situation (at 7.79%!), my suggestion is suck it up and wait out the fixed loan period.

#10 giggleandhoot

Posted 05 December 2012 - 10:33 AM

We're in the same boat. Though the Bank didn't tell us we can't use a fixed with an offset account. We really need the offset account as we put our business gst money in there. We'll probably just suck it up and pay for their mistakes..won't be the first time. We have just over a year on ours left..so hope it won't be too much, but it's just not working the way we wanted it too.


#11 (feral)epg

Posted 05 December 2012 - 10:41 AM

Probably worth talking to a mortgage broker or a financial planner. Most of them are nominally independent but take a percentage of whatever loans they organize for you.

#12 clm1982

Posted 05 December 2012 - 03:21 PM

So called the bank, breakout fees would be approx $9500 for both loans and we would be saving that back over the life of the original fixed term loan. In saing that we would save $700 a month in repayments so it certainly seems likely that we will be better off in the short term at least.  biggrin.gif

Thanks everyone for the advise.

#13 JECJEC

Posted 05 December 2012 - 03:29 PM

QUOTE (Fluster @ 05/12/2012, 11:30 AM) <{POST_SNAPBACK}>
The bad news is that you can't just pay a nominal amount so you can exit a fixed loan and take advantage of lower rates.  The bank has a complicated formula that includes charging you for the difference in income they would receive if you were paying them 8% interest as opposed to 5%. It's not pretty.  Having been in that situation (at 7.79%!), my suggestion is suck it up and wait out the fixed loan period.


That's because they would normally have a corresponding fixed term loan with an corresponding fixed expense that they will also have to pay out.


QUOTE (giggleandhoot @ 05/12/2012, 11:33 AM) <{POST_SNAPBACK}>
We're in the same boat. Though the Bank didn't tell us we can't use a fixed with an offset account. We really need the offset account as we put our business gst money in there. We'll probably just suck it up and pay for their mistakes..won't be the first time. We have just over a year on ours left..so hope it won't be too much, but it's just not working the way we wanted it too.


Sometimes it is better to have a portion of the loan variable to use an offset account against, especially if you know that there will be funds that build up over time - but you would still have the risk on that portion of the loan with upward rate movements.

#14 giggleandhoot

Posted 05 December 2012 - 09:34 PM

I think that was around the price we were told when we told them we wanted to change banks. I'm heading in next week to talk to them.


Sometimes it is better to have a portion of the loan variable to use an offset account against, especially if you know that there will be funds that build up over time - but you would still have the risk on that portion of the loan with upward rate movements.

I hope we just get someone who knows, I think we're the dumping ground for bad bankers in our town..if they last more than a 2 weeks!





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