Fixed Mortgages - To Break or Not to Break?


Posted 5 years ago by Admin

Current low interest rates offered by banks are causing fixed-term loan holders to consider breaking their loans, only to then find a nasty ‘break fee’ when doing so!

The Banking Ombudsman Scheme - an independent service which helps people sort out issues with their bank - revealed that a third of their complaints were fueled by current fixed rate loan holders who were unaware of the terms around breaking their fixed loans.

“Lending cases continue to be our bread and butter, increasing to almost a third of our caseload. This was largely due to the surge in customers with concerns about early repayment costs when interest rates began to flatten out”, says Banking Ombudsman Nicola Sladden.

“We are seeing a lot of early repayment cases where customers could have saved themselves a lot of heartache and money by understanding what they are signing up for.”

So, before you break your loan - make sure you:

  • Find out the cost of your break fee - this all depends on your exact loan and agreement but it can be a few hundred dollars to thousands of dollars.

  • Have a mortgage advisor crunch the numbers for you - they will give you unbiased advice. Sometimes it’s worth breaking, other times it's not - no two situations are the same.

  • Consider how you will pay the break cost - and whether breaking your loan will actually put you in a better position. Try not to borrow money to pay the break fee, otherwise this can defeat the purpose and you end up paying interest on interest.

  • If you do not have a choice - for example, you are selling your house and not purchasing another, find out exactly what the cost will be before you have the mortgage discharged to avoid nasty surprises. Sometimes if you are refinancing, another bank will help cover the cost, but check with your mortgage adviser as to whether it’s still cost effective.

  • DON’T - as mentioned above, borrow money to pay the break fee unless you can pay that break cost off as soon as possible! Sometimes borrowers may not have a choice if wanting to lower repayments due to budget tightness.

Remember - sometimes a fixed loan is worth breaking and sometimes it isn't. Also, It may not be worth doing right now but could be worth checking again in six months to see if things have changed. It is a lot to consider so talk to a mortgage advisor for expert, unbiased advice and it will save you a lot of stress and time - it’s usually a free service.


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