Hi all,
With interest rates now looking as they may have reach the bottom??, I was thinking about fixing the interest on my investment property for 5 years. Can anyone explain how/what penalties apply if for example I sell after 2 years, therefore breaking the 5 year contract.
Thanks
AriG’day,
There will a penalty if you break a fixed term loan. This is because the bank has “bought” your loan money at a particular price for a particular term, and they have coincided this “purchase” with your loan amount and term.
You are in an essence breaking a contract that the bank also has to honour, therefore they will be penalised, and they pass that onto you.
The “break costs” as it is referred to depends on the institution, loan amount and the time to go on the loan.
Hope this is helpful.[
]Dear Ari,
Each bank is different and the penalty that you end up paying will depend on your contract. For example you might have to pay an early repay fee plus 1years interest on orginal loan amount. If you are going to sell it than it would be much better to be on a variable rate. i don’t think the rates will move up that fast in the next two years.
Regards
KavitaI personally will never fix again. It makes you trapped to the bank. very hard to sell or to refinance without paying penalties. I know people who had had to m=pay more than $20,000 in penalties from breaking a fixed loan (house sold due to divorce settlment).
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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