Replacing a Fixed Rate Loan with another

I am one of those unfortunate people who are committed to a fixed rate loan at 8.5% for another 2 years - loan $430K. Currently, I calculate that it is costing me about $700 extra in Interest Only repayments due to the drop in rates.

Not sure if this would work but I am willing to commit to a further period, say a 5 year period if it means I can have the rate reduced from 8.5% to about 6.5% which is my current lender's 5 year fixed rate. I am willing to do this as I have longer term strategy with the IP the loan relates to and the reduced rate would mean it is close to a cash flow neutral property...

I have done some sums and believe that ING would be in a better position in agreeing to replace the existing fixed rate loan with a new fixed rate loan. Interest income on current basis to ING is say $72K on the current loan versus say interest income of $140K for a new 5 year fixed rate loan.

Needless to say that if I can't correct this current pain, I will be moving the loan to another lender at the end of the current loan.

So what do you think..... Is ING likely to consider the bigger picture of such a proposal or would you expect that they would stand firm - the idea being to dangle a larger carrot so they waive the break fee.

Interested in feedback. Thanks.
 
Let me play the ING man for a minute.

You thought 8.5% was a good deal when you signed up for it but as it turns out the market moved against your position. ING secured finance in the marketplace and on-sold it to you at 8.5% making a profit on the way (as ING should).

Now your proposal to ING is to allow you to weasel out of the deal without financial penalty which would actually put ING in a loss making position on this deal? Your figures of "Interest income on current basis to ING is say $72K on the current loan versus say interest income of $140K for a new 5 year fixed rate loan" BUT they do not show the loss ING makes by breaking this deal with the actual funds provider.

So the "stick" is if ING don't allow you to do this then you are threatening to take your business elsewhere at the end of the present agreement?

And the "carrot" is you will sign up for another 5 years, so ING would make more money out of you in the long run?

Mmmmm, and how much business would you be taking away? $430,000 you say. Mmmmm 0.000something % of our total loan book.

Thankyou for coming in to see me Mr In The Red - have a nice day.....walks away shaking head laughing. :rolleyes:
 
in short ..............the real answer will be no, as prop has already pointed out the reasons.

If we place the shoe on the other foot .........

Its not dissimialr to the lender asking you to pay a higher rate when variables go beyond your fixed rate, no borrower would agree to that either.

ta
rolf
 
It's not going to happen. They will charge you the break cost which I would suggest would be more than savings made over the remaining term (and include break costs in loan amount at the new rate).

Having said this, by fixing now for a longer period may be an advantage as fixed rates may have increased by the time the current facility matures. This is something that nobody can predict with any certainty. Again you would need to do some calcualtions and then decide if it's economically viable.

Regards
Steve
 
Fair call and thanks for the above replies. I am aware of the shortcomings of my 'stragery' although thought it was worth asking the question. The above responses above are clear and only convinces me more that fixed rates aren't for me as I would rather feel pain with everyone else rather than feel pain with high interest rates on my own.

Oh well - take it on the chin and cop it for another 2 years....

Cheers.
 
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