Is there a penalty for paying out my fixed rate home loan early?

Jasmine Shillington Updated by Jasmine Shillington

Break costs are payable if, during a fixed rate period:

  • the whole of the loan to which a fixed rate applies is repaid. In this case, this fee is payable on the date of that repayment, or
  • any part of the loan to which a fixed rate applies is repaid ahead of the scheduled repayments. If the total amount repaid ahead of the scheduled repayments in any 12-month period does not exceed $10,000.00^, break costs do not apply, or
  • the whole or part of your fixed rate loan is changed by agreement to a variable annual percentage rate.
  • Note: Break costs are payable on fixed rate loans even if repayment is because of a demand by us after default.

 

How we calculate the break costs

Our early repayment break costs formula is complex. However, the simple way to describe it is that we compare the change in our interest rates* between the time you took out the loan and the time of the early repayment to determine if you are required to pay break costs.

The simplified calculation:

(Early Repayment Amount –

 $10,000^)

X

Years Remaining

X

(Your Loan Fixed Interest Rate

 –

Our Interest Rate*)

 

=

Early Repayment Break Costs~

~ Note this amount will be adjusted for the present day value and cannot be below zero.

^ Additional repayments allowed in any 12-month period without early repayment break costs applying.

* The Our Interest Rate is the interest rate (% p.a.) that we can reasonably expect to earn on any amount that is repaid early. This rate will be determined as our published Fixed Interest Rate for the number of years remaining (rounded to the closest fixed rate period), or the Bank’s RateSaver (or equivalent product) variable rate when the remaining term is less than one year.

 

Example 1

Mark and Sally have taken out a $300,000 home loan with a fixed rate period of three years, at an interest rate of 7% p.a. Their repayments are $2,200 per month. When there are fifteen months remaining on the fixed rate period, and the loan balance outstanding is $290,000, they make an additional repayment of $100,000. At the time, the Bank’s interest rates for a one-year fixed rate is 5% p.a., and a two-year fixed rate is 5.5% p.a.

 

Simplified Break Cost Calculation:

($100,000

– $10,000^)

X

1.25 years

X

(7% – 5%)

=

$2,250 ~

 

~ This amount will be adjusted to allow for the present day value, so the actual early repayment break cost payable will be less than the simplified calculation above.

 

Example 2

Lily has taken out a $500,000 home loan with a fixed rate period of two years, at an interest rate of 6.5% p.a. Her repayments are $3,400 per month. When there are 10 months remaining on the fixed rate period, and the loan balance outstanding is $490,000, she wants to convert the loan to a variable interest rate. At the time, the Bank’s interest rates for the RateSaver loan is 5.5% p.a., and a one-year fixed rate is 5.95% p.a.

 

Simplified Break Cost Calculation:

($490,000

– $10,000^)

X

0.83 years

X

(6.5% - 5.5%)

=

$3,984 ~

 

~ The amount will be adjusted to allow for the present day value, so the actual early repayment break cost payable will be less than the simplified calculation above.

 

Break costs can be substantial, particularly if market interest rates have reduced during your fixed rate period. We recommend you ask us for an estimate of break costs before you repay a fixed rate loan early.

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