Early repayment charges
A fixed interest rate home loan is a contract between you and a lender. You agree to repay the loan by a certain date - no sooner, no later. The lender agrees to keep the interest rate the same over the chosen fixed rate period.
As it is a contract is makes sense to fully understand what you're getting into. Unfortunately not all lenders take the time to full explain or highlight every fact of their loans - so we'll aim to shed some light on the them for you!
Not surprisingly circumstances can change. Sometimes unexpected things happen and you might need to break your fixed rate contract by repaying your fixed interest rate loan before the agreed due date. You may see more attractive rates elsewhere and decide to switch to another interest rate before the end of your fixed rate period. You may be making a full or partial lump-sum repayment, or increasing your regular payments.
Why is there a charge?
The bank charges borrowers an early repayment charge to recover the loss the bank incurs when a loan is partially or fully repaid, you switch to another interest rate, or you repay the fixed rate loan faster than originally agreed.
Banks have purchased the money they are lending to you at wholesale rates, and if these were higher (at the time you locked in the rate) than now, then a break fee (or Early Repayment Fee) will apply.
my breAK FEES WILL BE HUGE THOUGH!
If you've already been in touch with your lender and have obtained a quote for the break fees then that's great - we know what we need to contend with. Even if your break fees are in the thousands (and they probably will be) it can still make financial sense to pay these to get onto a lower rate.
If you haven't found out the break costs yet - no problem. We can calculate an estimate for you if you can provide us with the following info:
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