Breaking a fixed interest loan - help!

[Lou300]

I need some creative thinkers out there to help a good friend of mine:

Personal situation:
She's lived in a PPOR in Ipswich QLD for ten years. Her husband lost a battle to cancer last year (http://somersoft.com/forums/showthread.php?t=70910) and she has now returned to her home town in NSW with her young daughter. She has put her Ipswich Queenslander on the market and has recently had an offer which she has accepted. She intends to live with her father in NSW until the sale is completed before searching for a PPOR back in her home town.

Financial situation:
Her and her husband had a fixed interest loan on the Ipswich property which still has 2-3 years left on the fixed term. The property has had an offer of $303k accepted with around $200k left on the loan. Unfortunately her credit union has notified her that an exit fee of $14k will be required to pay out the loan. Since she is now a single parent and is only working part time to allow for her to look after her daughter, and the fact that she hasn't been able to work for over a year with looking after her husband through the final stages of cancer, you can imagine that every cent counts. ...and a $14k exit fee is something that hopefully can be mitigated.

Options?
So what are her options? Im guessing she cant just pay out most of the loan, but keep a nominal amount ticking over in the loan to keep it open for the last 2-3 years of the contract since she is selling the house it is connected to? Would it be a good idea too offer a 6-12 month settlement period with the existing purchasers where they can move in and rent the Ipswich property. This would give her time to find an alternate property in NSW where she can transfer the loan over to and avoid the exit fees? Please, any help with this would be much appreciated!

Cheers

Louise.

 

[Peter_Tersteeg]

About the only thing she can do is port the loan to another property as you've indicated. Keep in mind the end loan will be the same loan, so it does need to meet the lenders LVR policy. Even paying down the loan a little could incur exit penalties.

I am aware of one or two credit unions that allow a 100% offset account or unlimited extra payments against fixed loans. This could be worth exploring as a way around the exit penalties.

 

[tobe]

break costs for fixed loans are simply the extra premium above the variable rate multiplied by the term remaining on the fixed term. So in this case she can either pay $14,000 upfront, or over the remaining term..... She isnt 'getting out of' paying the $14,000 if she aviods the break costs and ports it to a new property, she is justing paying the $14,000 in installments instead of a lump sum.

 

[datto]

I'd expect the credit union to show some compassion in the circumstances and negotiate some sort of deal. More public exposure may be needed in this case.

 

[Grmm001]

I agree to seek compassion from the Credit Union first. I would request to speak to their 'hardship team' to waive/reduce the penalties, every lender has a hardship team I believe & thay may be more helpful than maybe a Branch / call centre person who has no authority to waive/reduce any penalties.

 

[Spectre]

Possibly the CU might allow a substitution of security and secure the loan account by a term deposit. But doubt they'd allow this to have massive balance reductions & shed still have to make normal payments which I doubt will suit her.

 

[Terry_w]

Perhaps if she rented the property out for a while she may be able to claim all or part of the exit fee against her tax - may not help if low income though and the property could be exempt from CGT so please seek tax advice.

 

[Aaron_C]

Vendor finance?