Hi Dave,

I'll try and make this as clear as possible for you.

Firstly, you are not the only person to be "caught out" like this. It doesn't really matter whether you went through a bank or a broker as the majority of them out there do not clearly explain what you need to know about your mortgage. They are just happy to get your business.

Nothing has changed in regards to fixed rates. There always has been a break fee to a fixed rate if broken early. The break fee is calculated on your loan balance and takes into account the time remaining on the loan. So if you were to wait say another 6 months the break fee would be different (usually less) than today.

It can be easy to confuse fixed rate break fees with exit fees. However they are not even remotely the same.

An exit fee was applicable when either a loan was paid out in advance or refinanced with another lender. The abolishment of exit fees was introduced and intended to help make the playing field a little easier for home owners and investors to change lenders and to add "pressure" on lenders to offer their customers better deals on their loans. It's obvious that this has failed.

Fixed rate break fees are a cost that any lender will charge you for breaking your agreement with them. (Have a look through your mortgage documents and you will find a clause stating this) When you agree to a fixed rate you are basically saying that you will remain a customer with that lender for X amount of time. If you break this agreement the lender will charge you for losses in interest payments that should have been made according to your agreement. Fixed rate break costs have absolutly nothing to do with deferred establishment fees or exit fees and do not account for them now that they are no longer applicable. That's not to say that a lender may add some more icing on top for themselves! But who knows – right?!

Depending on your objective for your property it still may be worthwhile to break the fixed rate IF, and it's a pretty big IF, you will be better off financially in the end. It all depends on what you want to achieve with your property. Is it investment or owner occupier? Do you want to pay it off or not? Why did you go fixed just last year and for how long did you fix for? Why do you want to change?

Too many questions to add in here!

I hope this is clearer and helps answer your question.

Luke Goodman.
Mortgage Specialist
Ph: 0414 539 055

Remember this – anyone can buy property. But the structure and purpose of the loan can either work for you or against you.