Question: I have a $350,000 fixed loan for another three years at 8.29%. Is there a way to get out of this fixed interest-only loan without paying the huge payout fee?
Thank you kindly, Sonja.
Answer: Hi Sonja,
This is a common problem for many borrowers who chose to fix the interest rate on their loan when rates were high. Fixed rates attract higher break costs than regular standard variable rates and these break costs can end up being in the tens of thousands of dollars.
Whenever you fix the rate on your loan, you are betting against the market. You are confident that the rate that you have fixed in at will not go above the standard variable rate - and sometimes this is the case. But in recent times with the effects of the global credit crunch forcing rates down - and very quickly I might add - many borrowers are in your position, and they just couldn't see it coming.
Unfortunately, there is not a lot you can do. One possible way to reduce interest on your loan is to pay more off. Most fixed rate loans don't allow extra repayments, but some do allow them in lump sums and others allow for more regular amounts.
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