Breaking your interest rate?
Have you found yourself in a situation where your loans are fixed on a rate you’re happy with, then - BAM! - the market changes and rates drop way lower than your fixed rate, so you end up with FOMO?
This is not uncommon. When it comes to fixed rates, always bear in mind:
No one has a real crystal ball
At the time, your adviser (yes, you should work with one!) would have negotiated the best rate for you
There was a reason you selected the rate, or combination of rates, to suit your personal situation
Not everyone’s circumstances are the same, so comparing notes around the BBQ may not be the most helpful place to find your best deal!
If the FOMO builds and you want to know if there would be any point in breaking your interest rate, covering the break fees and re-fixing at a lower rate, then again a skilled adviser will be able to talk you through this and show you the cost versus benefit analysis.
Ideally, you would want the interest savings from the lower rate to offset the break cost. But you would need to ensure you don’t find yourself having the break costs absorbed into the 25 years you have left on your home loan – as paying interest on interest can be a zero-sum game.
If your fixed rate is higher than the current market rates, there will likely be a break cost, otherwise known as an early repayment fee. This is not negotiable with the banks and is a true cost. Under the Reserve Bank’s watchful eye, the banks can recover costs but not profit from this activity, so whilst the fee may sting it’s not just lining the banks’ pockets as some assume.
Does this help? If you want to know more be sure to get in touch.