Tag Archives: Commonwealth Bank NAB ANZ Westpac Rate Cut

Fixed Rate Mortgage Exit Fees

fixed_rate_break_costsMany borrowers may find that it very difficult to get away from their fixed rate loans as the costs may be too expensive.

As we are seeing significant decreases in mortgage rates over the last 6 months many mortgagors with fixed rate loans are contemplating switching to a variable rate mortgage.

So what are the costs involved?

The main cost is known as “break costs”. This is the cost of breaking your fixed mortgage early.

The actual cost of breaking a fixed rate mortgage varies significantly. The calculation of the actual cost depends on the following factors;

1.The interest rate it was fixed at compared to the current wholesale lending rate

2. The term remaining on the fixed rate contract

3. The amount borrowed

For example, if a person has a $300,000 home loan, fixed it for 3 years at 8.00% and has 2 years remaining he could be up for significant break costs.  If the wholesale mortgage rate for bank XYZ was 4.00% the break costs would be around $24,000

Calculated as: $300,000 times 4% (the difference between the wholesale rate and the fixed contact rate) times 2 years (the number of years remaining) = $24,000

Basically, you are paying the whole interest rate differential up front to the lender. Unless you feel the interest rate is going to be significantly less than the wholesale rate in the future then breaking a fixed rate contract may be worth considering. Always contact your lender and find out the exact exit costs as each lender has different calculations for breaking a fixed rate contract early.

As you can see that breaking a fixed rate loan when interest rates have decreased can be very expensive. The opposite is true when fixed rates rise and in some cases a borrower may receive a cash refund from the lender.

If you would like help with breaking a fixed rate loan please contact us or leave a comment below


RBA Cuts Interest By 1% – Will The Banks Follow?

Today the Reserve Bank of Australia cut interest rates to 3.25%. They claimed that the deteriorating world economic conditons is the major reason for the 1% reduction in the cash rate. To read the full report click here.

It will be interesting to see if the banks pass on the full interest rate cut. Politicians can huff and puff about major lenders passing on the full savings but it will be entirely up to the CEOs to make that decision.

I will keep you updated over the next week or so on the latest offerings from Australia’s major lenders and how much of the latest rate reduction they will pass on to consumers.

Westpac and ANZ have passed on the full 1.00%

Early this morning (4th Feb) NAB and Commonwealth Bank have also reduced their rates by 1% passed on to customers on the 13th February

I expect other second tier banks and lenders to follow suit. I will keep you updated.

ING have passed on 1%

RAMS will pass on 1% by the 9th

Suncorp have also passed on the full 1% but customers will have to wait until the 23rd

Bank West have also passed on the full 1%

It looks like all lenders have passed on the full 1% rate cut. However, news reports have intimated that all the big four banks are constantly reviewing their interest rate policy. This might mean that they might not pass on the full rate cut at future RBA meetings. We can only wait and see…

Keep an eye out in the next week or so to see how these lenders compare with their product offerings.