How to ‘break-up’ with your fixed rate and avoid out-of-pocket expense

If you’re one of the tens of thousands of Aussies who fixed their rates a few years ago when rates were ‘never going to be lower’, then you’re probably one of the tens of thousands of people who are now frustrated to see rates in the mid 2s when you’re probably in the high 3s or even 4s. It’s time to break up with your fixed rate home loan. You’ve probably also used our smart loanScore calculator and can see that you could potentially make some pretty big savings. Well, depending on your situation, our team of expert brokers have found a way that you may be able to leave your current lender and move to a new lender with little to no out of pocket costs (and that’s even taking into account the break fees that your current lender will charge you!) In the last few years the competition between lenders, especially major lenders, to win new business has heated up. So much so that lenders have started offering cash rebates to new customers. So, why not leverage these rebates to pay your fixed break fees? It doesn’t work for everyone but lets run a scenario. John has a loan of $400,000 which is on a 3.89% interest rate and is fixed for another 18 months and the loan has 26 years left on it. His monthly repayment is currently $2,040. John rings up his bank and finds out that the break fees for his loan are $3,450. Currently one of the big four lenders is offering $3,000 in rebates if you switch to them. If John uses this to pay the break fees then his out of pocket is only $450 plus a few hundred dollars switching costs, let’s call it $300, for a total of $750 in switching costs. Assuming John switches to this new lender on say 2.29% then his new repayment is going to be $1,703 a saving of $337 a month. The switching costs are going to be paid off in under 3 months but the real win is how much interest John would save in the next 18 months and how much lower his balance will be in that time also. Assuming he keeps the monthly savings and doesnt use it to pay down the loan faster, then the total interest saved would be over $9,000 and his loan balance by month 18 would be about $4,000 lower. Assuming he uses his savings to pay down his loan faster then this goes up another $500 and results in over $6,000 of additional repayment off the loan which saves more money in the long term. Most lenders let you make at least $10,000 a year in additional repayments, even on fixed rate products but always best to check with your uno broker. Now, this calculation involves a few moving parts and relies on knowing your fixed break fees (and a few other things) so if you want to find out if this strategy might work for you, you can always book in a time with one of our uno brokers to crunch some numbers. Or, if enough is enough and you’re ready to ‘break up’ with your lender and see what better deals are out there, then we can help you find a better home loan.Book a call with a dedicated uno home loan consultant today!