Why have my fixed loan break costs suddenly halved?

[Rob Williams]

I got break costs on a couple of 5 year fixed rate loans in February this year.
Both loans were written in April and May 2007. One is $173,600 and the other $196,400.
The break costs were around $22,000 each back in Feb.
I got another quote today and they are now around $11,000 each.
Sure, a few months have elapsed, but that seems like a huge difference.
Anyone else had similar experience? Anyone know the underlying mechanism behind this in such a, relatively, short timeframe?

 

[wylie]

Isn't it mainly that the interest rates in February were higher than they are now?

 

[Rob Williams]

Isn't it mainly that the interest rates in February were higher than they are now?

That should, in theory, increase the break costs. I was hoping they break quote would be close to what it was back in Feb as I figured the rate declince since then would have been compensated by additional month of the fixed term having expired.

 

[Rolf Latham]

bond yields are fairly higher now

So they can relend the funds at a higher rate

Im just guessin !

ta
rolf

 

[Rixter]

So they can relend the funds at a higher rate

Correct Rolf.....I went through the same exercise a few years back. At that time ,although I still had a year or two left to run on my fixed term, WBC told me I would have NO fee to exit early. When I questioned them about it they told me basically the same a you mention above - they could recoup more elsewhere.

 

[wylie]

That should, in theory, increase the break costs.

I always said my math is bad. Now I have just proved it .

 

[Rob Williams]

Am I the only one excited about this?
For me, it gives me potential to move close to CF neutral at very little cost. Or to stay CF - and buy more stuff.

 

[TAG]

Which bank was that from?

 

[ILoveProperty]

Am I the only one excited about this?
For me, it gives me potential to move close to CF neutral at very little cost. Or to stay CF - and buy more stuff.

Do you consider $11k per property as very little cost?

 

[Sim]

I have a fixed loan I am breaking, 2 years into a 7 year fixed period (not real estate!) where the break costs quoted were close to 10% of the loan amount, but all of a sudden they have dropped to what seems like less than 3% of the loan. I'm not unhappy about that at all really.

 

[Rob Williams]

Do you consider $11k per property as very little cost?

Given the cash flow benefit, yes. The break costs won't be coming out of my pocket, but rather equity, through refinancing.
It is a balance, though. I could greatly improve my CF, but at the expense of equity, so I could end up being able to afford another property, but unable to finance one as I've burned too much equity in break costs.
That was the case at $20k or more for hte break costs. Now, the playing field has changed.

 

[Rob Williams]

Which bank was that from?

Virgin Money - my primary lender fromt he time I stated just over 2 years ago. They looked after me very well until I hit the exposure limit their mortgage insurers could cope with.

 

[Rixter]

Virgin Money - my primary lender fromt he time I stated just over 2 years ago. They looked after me very well until I hit the exposure limit their mortgage insurers could cope with.

Hmmmm...Virgin, Money & $11k.......there's a line there somewhere Im sure .

 

[Rolf Latham]

Macq bank ..........

ta
rolf

 

[Player]

Charlie Harper prices

Hmmmm...Virgin, Money & $11k.......there's a line there somewhere Im sure .

Not a price that Alan Harper could afford

 

[sash]

Rob,

The costs have halved as the trend in fixed rates was down...thus they price the risk of the downward trend.

Now it has changed and the trend is the fixed rates are edging up. The cost of funds had increased substantially for fixed rates in just 3 months.

I have a loan which is due to expire in Aug. 2010...like you I am waiting ot lock in a competitive rate. The last time I looked it would cost be about $2700to get out of 7.45% fixed rate with a year to go...I suspect this would now be more like $1500.

The thing is to watch when to pull the trigger.....but I suspect it would be sooner than later as the newpapers are all reporting a recovery and price of real estate increasing!

 

[Ogre]

Interesting...

I locked in a 5yr fixed loan with St George just on 4 years ago, I enquired about getting out from it about 3-4months ago and was told around 9500, the interest i would of saved in the year and a bit would of been around 5500 so it wasn't worth it. Interesting if this fee has seemed to dropped recently? Anyone else enquired with their banks other than Virgin?

Im thinking might be worth a call