Rates have fallen. Are you thinking of breaking your fixed rate loans?

At the time that your loan was last fixed a lot of factors were taken into account. The market at that time, interest rates on offer then, what the alternatives were (floating for example) all contributed to the fixed rate term selected. Normally the decision is made to go fixed to retain some certainty on the level of repayments you will be making in the future.

Like everything though, interest rates cycle up and down. When interest rates fall, it’s natural to want to go to the lower rates. If you choose to repay a fixed rate loan early, then you are the one that is breaking your contract with the bank. There is a formula that the bank will run to see if there is an early repayment cost. They pass these costs on to you as the client who is breaking the contract in place with them.

The cost is generally similar to if you had continued to pay out the loan at a higher interest rate for the remaining term of the loan (although this varies between banks). Except that you would pay it in one lump sum.

The decision to break the loan rests with you. It would normally make sense to do this if you would like to enjoy a lower level of loan repayment now, rather than waiting until the end of the fixed rate term.

If you would like to break your loan then we can get a quote for you. You then need to decide if you wish to break the loan and incur any break costs. It’s important to note that these break costs can change daily and might get worse if you wait and the banks wholesale rates fall.

When choosing to break the loan you need to consider if you have the funds to cover the break costs or wish to apply to add this to your loan.

Please contact me if you would like to discuss breaking your loan and we can run some numbers personalised to your situation to see what the benefit or cost of this is to you. To enable me to make this comparison I will ask you to provide me with:

  • Your loan balance
  • Current interest rate
  • Fixed rate expiry date
  • What new fixed rate term you are thinking of fixing on.

I look forward to hearing from you.