Break costs

[tarah]

Hi all,

Has anyone paid approximately $15,000 break costs from a fixed rate to enable you to sell a slow CG and low CF IP? The rent has increased by $10 in nearly 3yrs and the IP has grown maybe $5,000 -10,000 in that time! Looking at my spreadsheet the last 2yrs it has lost me $17,000 each yr in total incl all holding costs . I have been wanting to sell it for a yr now but have been reluctant to pay such high break costs! I have spoken to agents about future growth in the area, as I don't live in the state and they seem to think there won't be much growth for the next 3-4yrs at least. I don't really want to throw away $17,000 each yr for the next 3yrs (fixed rate ends April 2013) so do you think I should risk missing out on ?????? CG, swallow my pride and pay the break costs?

Thanks

 

[wylie]

Is it possible to substitute another title deed for another property in exchange for the one that would entail break costs?

 

[Rolf Latham]

I have spoken to agents about future growth in the area, as I don't live in the state and they seem to think there won't be much growth for the next 3-4yrs at least.

Hmmmmmmmmmm

You have had the IP for 2 years ?

Dont know if agents would be a good guide as to if you should hold onto the place............indeed some would argue it may suit them better if you sell.

Realistically, if you do sell, what else would u invest in to replace the asset ?

ta
rolf

 

[tarah]

After doing some research myself I tend to agree with him and even if it does increase in value it may never be a very good CF IP due to it being in Hervey Bay (full of retirees and holiday makers as the agent pointed out).

I've looked at doing portability but would still have a large shortfall each yr due to the fixed rate and have a few loans with this bank already.

Never been big on selling or paying break costs but sometimes it's the best way to move onto something else. I have bought something else recently in a great area so I see this as my 'better' investment to replace this one.

Thanks.

 

[SYD]

Hi all,

I have spoken to agents about future growth in the area, as I don't live in the state and they seem to think there won't be much growth for the next 3-4yrs at least.

Why is this not a surprise?

SYD

 

[ugotadollar4me]

my banker told me if i ever break a fixed loan and lets say its at $100,000 and the rate is say 7% at the time of fixing and then when i break if the rate has gone upto say 9% then I do not have to pay anything as there happy to let me go and they actually make money but if the rate is only 6% when i break then i have to pay a break fee because they will now loose money

does this sound correct to anyone???

I also read threw my contract and i noticed it said if the rate is higher when i break then the bank would pay me out a small percentage

does this sound right???

 

[Peter_Tersteeg]

my banker told me if i ever break a fixed loan and lets say its at $100,000 and the rate is say 7% at the time of fixing and then when i break if the rate has gone upto say 9% then I do not have to pay anything as there happy to let me go and they actually make money but if the rate is only 6% when i break then i have to pay a break fee because they will now loose money

does this sound correct to anyone???

I also read threw my contract and i noticed it said if the rate is higher when i break then the bank would pay me out a small percentage

does this sound right???

That's the general understanding but it's not actually correct.

The break fee is calculated based on difference of the cost of funding the original loan and the cost of funding a loan at the moment. What your banker has told you is it's based on the variable rate of the day which isn't the same thing.

The money for fixed rate loans generally comes from different sources to the money for variable rate loans. The various sources sell the funds to the bank at a cost, the bank adds their margin and sells it to you. Since the money comes from different sources the costs of funds form these sources can differ wildly, so the break costs may not be what you expect.

Many fixed rate loans are funded from overseas whilst many variable rate monies comes from the Reserve Bank of Australia. Local economies and exchange rates can make a huge difference in the costs of funds between the two sources.

In the past, the costs of funds were similar which is why people make the assumption you've been told.

A better guideline would be to compare the fixed loan interest rates for today with the loan you've got, but even that's not necessarily accurate.

The only accurate way to determine break costs is to call your bank and ask. I've yet to see a bank actually pay the customer for breaking a fixed loan.