Hi guys, I am just after some opinions.
I currently have a $350K 4.44% fixed rate loan with CBA that ends mid July 2020. I am thinking about breaking my fixed period to sign up for the new fixed rate of 2.29% that is offered from 30th March also with CBA.
I have called them and the approximate break cost is $2400.
Do you think it is worth switching my loan now or waiting out the fixed period?
Should I Break My Fixed Period Home Loan?
Comments
His fixed term expires in mid-July, just 4 months away.
=P
You're right..my calc was too simple!
Do your maths.
(4.44% - 2.29%) x $350,000 x (4/12 months) = $2,508.33
Break fee of $2,400 plus assorted other fees and charges? Nah, just leave it.
Isn't what you have calculated just the short term benefit of 4 months. I would have thought you would also consider the marginal % benefits for the whole term of the loan.
OP's fixed term ends in July. He's free to switch then without incurring break fees.
I very much doubt the RBA or CBA will raise interest rates before then, though that's a theoretical risk.
Edit: didn't see your comment below, all good!
Yeah nah, rates wont go up in that time frame, might even go down a bit more.
OP can fix at the lower rate in mid July, without penalty, that's why the costs were calculated over this short period and not the term of the loan.
The cost of the breaking the current loan and signing for the new rate for this period is, as shown by @HighAndDry, is almost the save as the projected savings.
My bad. I guess the OP will get the revised rates in 4 months anyway. So my argument is not valid.
Thanks everyone for your comments. I have decided I won't go ahead with breaking the fixed loan.
Everyone is right, there's not much benefit there. Now I feel a bit silly about considering it in the first place!Thanks again :)
Just a few other points to consider, while you're here - how is your job security? If there's any real risk of losing your income or having it decrease before July, that poses a risk you won't be able to switch to the 2.29% product in July, whereas you could now.
And secondly, there's a very (very very) small but technically non-zero chance that the 2.29% product won't be available in July.
But otherwise, yeah, no point in switching now and incurring the break fees.
(It's also not a coincidence that the break fee is very similar to the amount you'll save - the calculation is effectively how much CBA stands to lose if you break, so for a CBA to CBA switch, it's basically the same as how much you stand to save).
Thanks for your advice. No issues with job security at the moment so I can sit on this idea of switching and keep my options open.
But I guess in the worse case scenario, if anything affects my income and I get worried about not being able to switch to 2.29% in July, I could just contact the bank to switch it in that moment of doubt and pay the updated break fee.
What about switching to ANZ for their 2.19% fixed rate with $4000 rebate? Would cover your break cost with some extra money for yourself.
Well, just using a simple calc to estimate the interest payable this year, there's a pretty big difference and you'll easily make the $2,400 fee back.
$350k x 4.44% = $15,540
$350k x 2.29% = $8'015.