Nila Sweeney
Q. I have a $358,000 home loan which is fixed at 7.59%. have another 18 months to go on the fixed term. Is there any way can get out of the fixed rate now without paying a $13,000 penalty fee?
 
A. The term ‘break costs’ generally applies to the costs you incur when you ‘break’ or pay out your loan during a fixed rate period. The break costs represent the ‘economic loss’ to your lender, generally being the difference between your fixed interest rate calculated over the remaining 18 months less the short-term variable rate your lender is able to achieve in the market for that 18-month period. break costs you mention seem very high and Ii am assuming they also include other exit fees, not just the break costs. When borrowers exit fixed rates for lower variable rates they should check that the lower rate plus the penalty fees do not in fact result in a higher overall rate for the remaining period (in your case, 18 months). In the current interest rate environment where variable rates have increased (the banks’ standard variable rates are now sitting at 8.32%), you will probably be much better off seeing out the loan term and then researching the market before settling into a new loan.

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