Problems with interest rates and repayments? Ask for home loan help.
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There are two main fees that you may pay when canceling a fixed interest rate loan. The first may be an early repayment penalty or deferred application fee that is built into many loan contracts, fixed or variable, that helps recoup some of the set up costs of a loan that is not recovered as the loan has not been in place long enough for the margin above the cost of funds to cover. This early payout penalty will be detailed in your loan contract.
The other, specific to fixed rate loans is “economic cost”. In order for a lender to protect itself from loss in the case of interest rate rises during the life of the fixed term, a parcel of wholesale funds is purchase and assigned to that loan.
This is called “matched rate transfer pricing” and in practice (or theory) a lender is committed to pay for these funds at a given rate for the same term as the fixed rate loan and the margin above the cost of the funds is the lenders profit on this loan. If you repay the loan before time the lender is still committed to paying for the funds for the balance of the fixed term and if they cannot re-lend these funds at the same profit margin then they will pass this loss of profit on to you.
In addition a lender who has covered the cost of Mortgage Insurance on your behalf may pass the cost of this on to you in terms of the contract for both fixed and variable loans.
Before entering into a fixed rate home loan it s best that you determine what costs may be incurred and how a loan product fits in with your plans.
To help determine which loan best serves your needs Call Your Local Finance mortgage broker on 1300 787 665.
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