How to successfully itemize or prepay your fixed rate home loan

When you get a fixed rate home loan with a lender/credit provider, you sign a fixed rate contract and agree to keep your interest rate fixed for a specified period of time.

Thinking of breaking up with your fixed rate home loan?

Breaking your fixed rate home loan contract during the fixed rate period can be surprisingly expensive. Therefore, if you decide to break, change, or prepay your loan early, for any of the following reasons, you will be liable to your existing lender/credit provider for any loss you incur because you break your rate agreement. fixed:

>> You want to get out of your fixed rate home loan, because you have decided to sell the collateral property within the life of the loan

>> You decide to switch your fixed-rate home loan to another lender/credit provider to take advantage of lower interest rates

>> You decide to change your fixed rate home loan to a cheaper variable rate home loan

>> You may be able to pay off your fixed-rate mortgage early (either in whole or in part), because you have received a lump sum or inheritance, or

>> You want to make additional payments above the accepted tolerance, because you may have received a raise

Will I be charged a fee if I cancel my fixed rate contract?

There are two types of fees you will be responsible for if you break or “prepay” the loan early, and they are the amount you will owe the lender/credit provider if you decide to pay off your fixed rate mortgage before it is due. the term, such as:

>> An early payment adjustment (ERA) fee (this is the expensive fee), and

>> A prepayment fee (this fee is usually a couple hundred dollars)

If you are still undecided about whether to break your fixed rate contract, it is recommended that you:

>> You first talk to your lender/credit provider and request a quote, which sets out the fees you’ll be charged if you decide to split or “prepay” your loan early

>> Please refer to the terms and conditions of your fixed rate contract to determine for yourself what fees will be charged

When you’ve done the steps above, you can make a much better and informed decision about whether you still want to break or “prepay” your loan early.

Do breakdown rates have other names?

Breakdown fees have different names depending on your lender/credit provider, such as:

>> Departure fees

>> Download rates

>> Rest costs

>> Early termination fees, or

>> Commissions for early repayment

How are breakage and prepaid fees calculated?

Lenders/credit providers may choose several different ways when calculating the itemization or prepayment fees to be charged, for example, lenders/credit providers may choose any of the following methods:

>> A simple fixed dollar amount

>> A percentage of the amount you have borrowed, or

>> Default additional monthly payments

Lenders/credit providers will calculate these fees as follows:

>> Compare the interest rate at which you locked in your loan with the current market rate, and

>> The length of time remaining on your loan is compared to the initial amount you borrowed

Example: The following example will better explain the concept of how breakage/prepayment fees are calculated. The illustration assumes you have an existing loan on your collateral property and the loan details are:

The current amount of your fixed rate loan is: $200,000

Your fixed interest rate is: 6%

Your fixed rate term is: 5 years

You have decided to sell the collateral property after 3 years and want to pay the full amount of the loan, and the interest rates have also dropped 2%

From the example illustrated above, the fee charged will be $800.00

Installment = $200,000 x 2 years x 2% (interest rate change) = $800.00

How can a finance broker help you?

When considering whether to itemize or prepay your fixed-rate home loan early, spend some time researching recent rate movements. More importantly, talk to a dedicated financial expert who can:

>> Help you compare the interest costs of a potential new loan, and

>> Guide you towards the right personal decision that best suits your needs and requirements

So, here’s how you can successfully break down or prepay your fixed rate home loan.