Breaking a Fixed Rate Homeloan

mkh1991 on 03/11/2020 - 15:51
Last edited 03/11/2020 - 17:22 by 1 other user

Hi All

I am after some advice for breaking a fixed rate homeloan.

I have around $250k loan with ING fixed for 3 years in Feb this year, @ rate of 2.84%. However seeing the fixed rates have been dropped recently, and with another 2 years 2 months to go on my fixed term, do you think its worthwhile breaking the fixed rate, pay around $3500 breakage fee and sign up for a lower fixed interest rate with some other bank which also offer cash back to cover the breakage costs. my LVR is around 80%.

Thanks

• 

  Ocker on 03/11/2020 - 16:04

  +2

  I would firstly check with ING and get an accurate break cost as $2,500 seems very low to me

  • 

    mkh1991 on 03/11/2020 - 16:15

    sorry its typo, i checked with ING and its $3500

    • 

      srsparky on 03/11/2020 - 16:17

      +5

      I think that might be the breakage fee, but surely there are "lost interest" fees as well… Something in line with how much interest they lose out (quick calc ~$15,000)..?

      ING FAQ

      • 

        Cartman2530 on 03/11/2020 - 16:56

        I agree, there will be other fees on top of the breakage fee, which depend on how long is left on your loan.

      • 

        ragrum on 05/11/2020 - 00:01

        You seem to have made a mistake in your calculations. $3500 is about what I would expect. OP doesn't need to pay a break cost equal to the full cost of the interest they would have paid on the loan for the remainder of the fixed term. Instead, they only need to pay the amount of 'above current market' interest that they would be paying. I.e., if OP breaks the loan, and the bank has to lend that principal to another customer, the bank won't be able to charge the new customer the same amount they were going to get from OP, because market rates have dropped. OP pays a break cost to make up that difference.

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  avoidfullprice on 03/11/2020 - 16:54

  See a broker, get them to help you compare the cost

  It depends on your loan term (not just how long it is fixed). E.g is it a 30 year loan with first 3 year fixed?

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  tsunamisurfer on 03/11/2020 - 17:51

  Only the OP can work it out.

  He has the exact balance, fees and outstanding interest payments.

  Then only he has in mind the next product he wants hence can do the comparison.

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  Seraphin7 on 03/11/2020 - 20:14

  How much is the loan you want to break?

  What interest rate are you going to get?

  If you're talking $100k with a saving of 0.50% p.a., your savings will be a bit over $1,000 for the 2yrs,2mths you have left.

  For every $100k, your savings increase by that $1,000. $1m would be ~$10k saved.

  If you're saving 1.00% p.a on $100k, you're at $2,000-odd over the remaining time … ~$20k saved on $1m.

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  lgacb08 on 04/11/2020 - 21:52

  goodness me, who was the broker fixed that rates for you, I got the same rate on a variable with offset over a year ago simply by walking into anz and bargain with them over the cba branch a few metres away.

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  Kinko82 on 15/11/2020 - 17:55

  If you're break cost is $3500 on the fix rate, you should definitely consider refinance your loan to St George with a $4000 rebate.
  Cost of refinance will be:
  $250 ING discharge fee (not sure if that's already been included in your $3500)
  $146.40 government fee to remove ING's mortgage off your title deed (NSW only)
  $146.40 government fee to add the new bank's mortgage on your title deed (NSW only)

  The $4000 cashback should cover most of your expenses, you'll then be able to get a much lower rate with another fix rate loan or just a simple basic variable home loan.

  Just be mindful your loan amount needs to be min $250k to qualify for the cash back.

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  Muselibar on 16/11/2020 - 13:23

  Probably worth it in the end. Perhaps worth speaking to a broker who could break it all down for you.
  Remember compounding interest too when doing the sums.
  Also, when signing up to a new bank even if they offer $4k sign up bonus, you can still sometimes negotiate on the rates and/or other fees which you can almost never do if locked in.

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  El-Rhi on 23/11/2020 - 21:08

  It’s a good time to break as the market rates have not fallen as much as fixed rates. So assuming you break and go on a lower fixed rate, you will come out slightly ahead.