Taking a $16k hit - breaking fixed rate loan. Negotiation/anything I can gain?

[Richard Feynman]

Can u turn it into an IP?
btw, the break costs will reduce as variable rates increase

'fraid not.

And yes, I've been watching the break cost/market swap rates almost the entire duration of the loan. Started around 7k, rocketed up to 40k as rates dropped (almost as soon as I drew the loan), and has eased back since.

It's dropped from >$22k a few weeks ago to about $17k at present. Hoping the market swap rate goes up a shade more so the break fee drops just that bit further.

 

[tobe]

Congratualtions Richard for taking the plunge.

You will be much better off both psychologically and financially after breaking.

Im afraid I cant add to what anyone else has said about waiving the break cost, I just wanted to congratulate you on taking action.

 

[Richard Feynman]

Congratualtions Richard for taking the plunge.

You will be much better off both psychologically and financially after breaking.

Im afraid I cant add to what anyone else has said about waiving the break cost, I just wanted to congratulate you on taking action.

Cheers. The numbers finally stack up, so it's the only logical thing to do.

 

[jonmardell]

Congratualtions Richard for taking the plunge.

You will be much better off both psychologically and financially after breaking.

Im afraid I cant add to what anyone else has said about waiving the break cost, I just wanted to congratulate you on taking action.

I agree psychologically but financially this will play out over the next 12 years. If you switch to variable then any saving would be artificial and may end up costing you more.

Loan Amount 395K
Current Rate 8%
5 Year Fixed rate 5.49%
Difference is 2.51%
Savings over 5 years 49,572

If it was my loan this is the option i would be considering as at least over the next 5 years there is a definitive financial gain against taking a variable rate which may increase at any time. You still have the 7 extra years on the term that you could end up paying more but that is a smaller risk to take than 12.

 

[r3ckless]

Good job mate

 

[Richard Feynman]

Fee has risen by almost a grand. Saga continues. I'll keep this post updated for my own interest as much as anything. Here's hoping it doesn't climb back to $22k over the next week.

Jon, valuable input.

Fixing some or most of the loan again is something I'll be looking at if it works in my favour in terms of serviceability (I won't fix the full amount unless I can have an offset account - different lender, perhaps?). I have equity trapped with CBA at present. In 12 months I'm likely to have a whole lot more trapped.

If I can break and re-fix in order to pull the equity, I'll do it. Likewise, if another lender will look favourably on my being fixed for 3-5 at around 5%, I'll do it.

 

[S.T]

What Jon said is spot on, this is probably the third or fourth thread I've seen you raise for this issue Richard, maybe it's time to take action?

 

[Richard Feynman]

maybe it's time to take action?

As soon as the break fee drops below $16,000, I will.

If it doesn't dip, I'll happily cop a higher fee depending on how much time has passed. Each successive month of inaction is costing me an extra $600 in interest.

 

[Marty McDonald]

As soon as the break fee drops below $16,000, I will.

If it doesn't dip, I'll happily cop a higher fee depending on how much time has passed. Each successive month of inaction is costing me an extra $600 in interest.

I would break now. 12 months or so of no change to variable rates for mine then up a bit still you would be ahead in a few years. Crystal ball polishing as we speak.

 

[r3ckless]

As soon as the break fee drops below $16,000, I will.

If it doesn't dip, I'll happily cop a higher fee depending on how much time has passed. Each successive month of inaction is costing me an extra $600 in interest.

Think of the time involved / potential opportunity. Imagine if the era goes down after 3 montha. Thats already $1800 worse off according to your interest calc. Furthermore what if the longer term fixed rates continue to climb. Recently as the 3/4/5 year fixed rstes increased. It doesnt make them favourable at all imho. Two year with cba is decent but 3 and up. Personally i wouldnt do it

 

[Reality Cheque]

Thanks again everyone. Jon, very valid points. BV, Jon and others, I should have mentioned:

> 8% fixed for another 12 years

...yep.

You got off lightly.

I just paid $35k to break 8% for 5 years.

It's like ripping a band aid off, it hurts at first but then everything looks better once it's done.

Pay it and move on.

RC

 

[r3ckless]

I noticed today that cba altered their term deposit rate offerings. The rat didnt chbage but they offered the more competitive ratw for 5 months over 4... i noticed that whenever deposiy rates move. Home lending rates follow in a few weeks.i know that in this case the rate hasnt moved but the term has been changed... it may mean fixed rates going up again in a month or two? If thats the case it should lower the era that op is bound to receive?

 

[Richard Feynman]

I noticed today that cba altered their term deposit rate offerings. The rat didnt chbage but they offered the more competitive ratw for 5 months over 4... i noticed that whenever deposiy rates move. Home lending rates follow in a few weeks.i know that in this case the rate hasnt moved but the term has been changed... it may mean fixed rates going up again in a month or two? If thats the case it should lower the era that op is bound to receive?

Break fee yesterday: $18.5k
Today (spoke about 2pm): $17.4k

 

[r3ckless]

Hope it goes down for u richard!

 

[Richard Feynman]

Time will tell. Tomorrow may be a day of particular interest.

 

[Richard Feynman]

I just broke the loan.

$16.72k incl. fees.

 

[tobe]

good job. and then some more characters

 

[jonmardell]

I just broke the loan.

$16.72k incl. fees.

well done, how do you feel about it? Did you switch to variable or another fixed rate term?

 

[Richard Feynman]

well done, how do you feel about it? Did you switch to variable or another fixed rate term?

No feelings, just executed a plan. I'm not a very emotive bloke.

However, it's opened the doors to my next IP purchase which is positive -- big improvement on serviceability, and my savings rate improves $600/month. Aiming to purchase in Q1/Q2 2014.

I'm on variable for now. May consider re-fixing part or all down the track, but that hinges on structuring the next purchase with input from my broker and accountant.

 

[S.T]

well done mate! Onwards and upwards.