Question About Break Fees

[haydos1979]

Hi all,

I am hoping that someone would be able to explain to me how break fees are calculated.

I have an interest only 5 year fixed rate home loan with ING which I want to refinance. I spoke to the bank today and they came back with $12424 as the break cost , plus $250 discharge fee and legal fees.

I have had a look on the internet at break cost calculators and the figures they have come back with are around $5000. I know that the calculators are approximate figures but it is a huge difference.

One site I looked out was http://www.homeloanexperts.com.au/fixed-rate-loans/break-costs-exit-fees/#break_cost_calc

Details of the loan are:

Loan Amount - 285000
Interest Rate - 8.44%
Time remaining - 2 years 1 Month
Current ING 5yr fixed rate - 7.69%

Also I asked the bank how they worked it out and they couldn't tell me. If I feel that the bank is taking me for a ride what are my options?

If anyone could shed some light on the figures being so different that would be greatly appreciated.

 

[Rolf Latham]

Hi Hay

Your ING loan contract will have most of the formula and bits and pieces

What it wont have is the cost of funding on real terms on the day.

In general, with a fixed rate, the bank has a fixed rate contract on the money lent to you, to say a large super fund or the like.

So when you want to exit a fixed, the lender wants to retain its margin

ta
rolf

 

[haydos1979]

Rolf,

thanks for the information.

I am trying to find out if the figure that ING gave is right or if they are trying to rip me off. It just seems to be a huge difference when I what I got using the calculators for on the intertnet compared to ING.

 

[Rolf Latham]

Hi Hey

Thats because the net calcs are ofte based on "noise" designed to stir up emptions and create marketing opportunities.

Ask for the fixed rate breal cost in writing, and not as a figure but as the components of the calcualtion.

Chances are they wont do it...........and under the terms of the contract thye probably dont have to.

If you are really concerned, you can approach the Banking Ombudsman's representative at ING and if you dont get much in the way of info that you are satisfied with move to the Ombudsman themselves, though they usually dont look at things unitl u have lost moey and have an actual claim.

The reason the figures are different between the online vs the actual is because the online things usually make assumptions which are rarely contractually correct.

ta
rolf

 

[simo74]

Without knowing what the interest rate differential is you will have no way of knowing for sure.

I would say its accurate as the cost of funds have risen and the figure you have been given would equate to a 2% interest rate differential(Approx).

Hi all,

I am hoping that someone would be able to explain to me how break fees are calculated.

I have an interest only 5 year fixed rate home loan with ING which I want to refinance. I spoke to the bank today and they came back with $12424 as the break cost , plus $250 discharge fee and legal fees.

I have had a look on the internet at break cost calculators and the figures they have come back with are around $5000. I know that the calculators are approximate figures but it is a huge difference.

One site I looked out was http://www.homeloanexperts.com.au/fixed-rate-loans/break-costs-exit-fees/#break_cost_calc

Details of the loan are:

Loan Amount - 285000
Interest Rate - 8.44%
Time remaining - 2 years 1 Month
Current ING 5yr fixed rate - 7.69%

Also I asked the bank how they worked it out and they couldn't tell me. If I feel that the bank is taking me for a ride what are my options?

If anyone could shed some light on the figures being so different that would be greatly appreciated.

 

[simo74]

Correction. The cost of funds increasing would decrease the amount of the break cost. Anyway demand from ING a written payout quote including a explanation on how it is calculated

Without knowing what the interest rate differential is you will have no way of knowing for sure.

I would say its accurate as the cost of funds have risen and the figure you have been given would equate to a 2% interest rate differential(Approx).

 

[Marty McDonald]

I think lenders must have formulas that work in their favour no matter what happens in the debt markets / cost of funds. They never seem to work out for what you think they will and are always in the lenders favour.

It works out to be a little over 2% pa differential as mentioned by Simo. So that equates to a cost of funds rate of about 6.3% pa ish. I find it hard to believe this is their cost of funds if they can lend out at 6.96% variable and pay a broker 0.6% commission!!

What can you do though...as Rolf said ask for documents proving the calc.

Never fix for more than 3 years is what I am thinking these days...things change to quickly.