Hi All,
Has anyone ever managed to get out of fixed rate without paying economic cost / thourgh a broker who was willing to compensate. I am currently on 4.19% fixed rate for another 18 months on a loan amount of $1.2mill .
Any suggestions would be helpfull!
$12K
Ouch. Do your sums…. if its cheaper to break then break. If not the ride out the next 18 months. Some banks offer 2000-3000 in break fee coverage but i doubt anyone will compensate you the $12k.
The other option is to contact your current lender and see if you can renegotiate in order to "stay with them and not go else where." You might be surprised if they want to keep your business long term.
the banks is basically saying they are forgoing 0.66%pa worth of interest for 18 months for the $1.2m.
given that new fixed rates are coming in at <3%pa you should be grateful they are only applying a 0.66%pa penalty instead of something over 1%pa.
From personal experience, small lenders (ubank, athena) etc will give you rates < 3% but they don't deal with brokers. so either you need to cough up break cost and move to small lender by calculating your savings if you move to lower rate home loans.
Did my calculations, If i move to a small lender.. I break even about the same time the fixed rate being expired.. So looking for incentives or a way to reduce the economic cost
That does not sound true.
For $1.2mil loan over 30 yrs, following is the simple calculation based on home loan calculators.
Rate Total Monthly Payment
Interest
4.19% 910035 5861
2.84% 584263 4956
So over 18 months you can save
$5861 - $4956 = $905 per month * 18 months (your remaining fixed rate) = $16290.
Its an investment loan on interest only.. 2.84% would be Owner Occ on P & I
@niish150887: yeah you did not mention in your post. When you expect people to help you, better provide them with better information.
is it "they don't deal with brokers" or "they don't pay brokers"?
Both.
They don't accept introductions from brokers.
As in, I have no access to their credit criteria so cannot prepare a file for them.
If i did, they would have to go back to the customer anyway.
Most break penalties are almost up to the cost of going through the full term of the fixed rate.
And they should be.
The borrower has gambled that rates will go up, if they do the borrower stays silent.
This is equivalent to playing Blackjack at the Crown, OP got an 11 and doubled down, and got a 2 and wanting to take his chip back.
I understand the reasons of me fixing the rates and agree your comments.. but there is noting wrong to look for legal ways to avoid break up costs !
P.S i knew there would be someone trying to lecture or educate me on the economics of fixed rate ..lol
P.S i knew there would be someone trying to lecture or educate me on the economics of fixed rate ..lol
thourgh a broker who was willing to compensate.
It's not a lecture, I would only lecture those open to learning. It's more calling out entitlement. Do you listen to yourself? You want the broker to compensate (compensate is your word) you for your gamble gone wrong. Do you know how much brokers make compared to the amount you are asking them to foot?
My current break cost on the fixed loan is higher than sitting there and paying out the interest.
Till March next year will cost me ~$700 in interest. To break the fixed portion of the loan they want ~$2.2k
They couldn't tell me how they calculated that 'because it changes everyday'
it changes every day based on the equivalent swap rates in the money markets.
I don't think I have heard that term before. Is it something like interest I would pay till end of the loan + difference in same period between what I am on now and what I could get (lower rate)?
I just don't understand how they can charge more than what they would make from interest anyway to get out.
They couldn't tell me how they calculated that 'because it changes everyday'
Banks are experts at making the calculation so convoluted, that even the front line staff sometimes struggle and give customers a generic answer as mentioned.
To be honest it doesn't bother me in this case.
The OP signature is on the fixed rate contract with the terms and conditions clearly set out (inc penalties) and the Bank manager was not holding a firearm to the OP's head, these 2 facts are the only 2 that matters in this case.
It'll be difficult for you to find a broker that would reimburse you enough money to cover your break cost of $12k.
Mortgage brokers are paid around 0.50% to 0.60% of the loan amount settled as their upfront commission. So for your loan of $1.20M x 0.60% = $7200. Some brokers may split half of it with you or whatever amount. Still wouldn't come close to your break cost of $12k though.
You can try talking to the bank's retention team and asking if they would waive the break cost if you stayed with them and fix your loan again for 2 years on a much lower rate.
4.19% ….. Ouch!!
How much are your break fees/penalties?