Fixed Home Loans

Help I'm stuck in a fixed loan with a high rate!

With the recent decrease in interest rates, the banks in Australia have experienced an increase in customer enquiries around the "cost" of breaking existing Fixed Rate Home/Investment Home Loans.

Why are so many people trying to get out of fixed rate loans? Because they locked in their rate when rates were higher and now want to take advantage of the lower interest rates!

The banks always want their slice of the pie

The Bank charges an ERA (Early Repayment Adjustment, also known as a "big fee") when a Home/Investment Home Loan is partially prepaid, fully prepaid or switched during a fixed interest rate period (when all or part of a loan is repaid early, we say that the loan is being "prepaid").

Why do they charge it?

When a bank funds a fixed rate loan they do it by buying funds on the money market. If you pay it off early then they also have to pay off their funding early and deal with any penalties they incur. They then pass these on to you!

How much will my break fees cost?

The formula to work out exit fees is very tough so you have to call your lender to ask them for a figure. Sorry no easy ways out!

ERA calculations are only valid for the day the calculation is made. This is regardless of whether you are switching their loan, making a partial prepayment or full payment to their Fixed Rate loan. If you do not pay the ERA on the day of the quote, a new quote must be calculated in all instances.

Partial Prepayments: Fixed Rate customers can prepay $10,000 (varies between banks) per annum without incurring an ERA charge.

Payout figure in advance: Bank can provide an indicative payout figure in advance. The payout figure is "indicative only" and the exact payout figure will be calculated on the day of payout.

What is the best way to avoid the fixed rate exit fees?

The best way is to choose the best fixed rate loan when you first apply! Some banks will let you pay off more than $10,000 p.a. and some will give you added flexibility unavailable from the four major banks.

If you are already in a fixed rate home loan then tough luck, once you've signed a loan contract there is no backing out. Your choices are either to stay with your current loan or refinance and pay the break fees.

About the Author

Otto is a Mortgage Broker that has specialized in fixed rate lending for Australians. His company the Home Loan Experts is now one of the top home loan broking firms in Australia.

Article Source: http://EzineArticles.com/?expert=Otto_Dargan