What if you’re locked in to a fixed interest rate and interest rates keep dropping. Can you get out of that fixed rate? And is it worth it?
Oh boy! Those interest rates have really fallen. Your neighbour just fixed his mortgage at 4.35% for one year and you’re stuck on 5.29% from earlier this year.
When you fix your mortgage, you are promising to borrow money from the bank at a certain rate for a certain time. You get the benefit of knowing exactly what you will pay over that time and the bank gets a promise that you will borrow that amount of money.
However, if you want to change the deal, you will have to pay break fees. Usually the only reason you want to change is because the interest rates are lower—no one ever wants to get higher interest rates. So, sometimes the break fees are worth paying, other times they are not.
We have come up with a very smooth solution to this question of loss verses savings. And all we need are the following tidbits of information from you:
For each account:
- The amount that is fixed at your current bank (e.g. $350,000)
- The current interest rate that account is on (e.g. 5.39%)
- The date that account matures (e.g. 17 July 2016)
We also need:
- The quoted break fee. This fee will only be valid for one day but most of the time will be a good indication of cost. You can ask how much the fee will be simply by phoning your bank.
With this information we can provide you with a profit (or loss) so you can know if it’s worth pursuing.
There is no requirement to change banks or even action the break fee. We just want everyone to sleep as best they can at night with their mortgages and not have to worry about that pesky neighbour always mentioning their amazing mortgage rates.
Please call your friendly Velocity Financial adviser and they will be happy to help with any questions you have.
Rupert Gough is an Authorised Financial Adviser and part of the VitalSure team. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.