Break fee

[coolcup69]

Hi there

If you are looking at repaying a fixed loan early (eg from the proceeds of selling the property which is secured against the loan), then you usually have to pay a break fee. Let's say my fixed loan has $100 outstanding and the bank quotes the break fee at $5. Under my fixed loan I have the ability to prepay $20 of the $100 without penalty. If I prepaid the $20, would the break fee quote be lower?

Thanks

 

[Aaron_C]

Short answer is yes.

 

[coolcup69]

Thanks Aaron, and would the reduction in break fee be directly proportional to the amount of the loan that was paid down?

 

[Rolf Latham]

depends on the lender ( look out for potential discussion on RMBS lender vs balance sheet)

Also, some lenders that are fine with partial break , their staff are sometimes not fully trained on this one, so ask someone else until you get a different answer, or a written policy extract.

ta
rolf

 

[coolcup69]

Update on this. I asked my lender (NAB Personal Direct) to provide me with a break fee. They did. I then asked them if it would change if I paid down the principal by the maximum amount allowed before copping a penalty ($20k). They said the figure would not change.