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Should we break this mortgage?

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  • Should we break this mortgage?

    We have a 5 year fixed term for $585k @ 7.65%. It has three years left to run. We would break now and leave it on floating for a few months. Break fees will be minimal as the current 5 year fixed rate is higher than this rate
    We would be taking the gamble that the fixed rates will come down below 7.65% in the next 1-6 months.

    What would YOU do?
    Jo Birch
    Looking for someone to manage your next project or event? Then call now!
    +61 450 148 678

  • #2
    As long as your break costs are small I would break and either go onto a floating rate or if your lender is one that has cut their 6 month rate aggresively I would consider going on this.

    The markets have priced in a 100bp OCR drop but there is a fair way to go so you want to be in a position to take advantage of this in the next 12 months
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    • #3
      Who is the loan worth. i think Westpac works it out based on the current wholesale rate (note the comparable term) so it might be more than you think.

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      • #4
        Loan is with Sovereign. Nil break fees (just rang them to check)
        Jo Birch
        Looking for someone to manage your next project or event? Then call now!
        +61 450 148 678

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        • #5
          Originally posted by krispedersen View Post
          As long as your break costs are small I would break and either go onto a floating rate or if your lender is one that has cut their 6 month rate aggresively I would consider going on this.

          The markets have priced in a 100bp OCR drop but there is a fair way to go so you want to be in a position to take advantage of this in the next 12 months
          I agree Kris. I was advise a few weeks ago by my broker to NOT break another loan that we have at 9.45 % with 15 months left to run. Break fees then were just over $2k. Broker said not worth breaking to go onto floating as savings couldn't be properly calculated. They advised to wait and see what the fixed rates came down to instead of floating for a few months.......
          Break fees today for same loan are just over 9K as their two year rate has dropped so much. Boy am I peed off
          Jo Birch
          Looking for someone to manage your next project or event? Then call now!
          +61 450 148 678

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          • #6
            Saw some stats today saying the average interest rate over the last 10 years in New Zealand is 7.5% and the average OCR is 6.2% for the last 10yrs.

            Interesting?

            Just shows how high it's been for the last few years.

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            • #7
              Originally posted by Heg View Post
              We have a 5 year fixed term for $585k @ 7.65%. It has three years left to run. We would break now and leave it on floating for a few months. Break fees will be minimal as the current 5 year fixed rate is higher than this rate
              We would be taking the gamble that the fixed rates will come down below 7.65% in the next 1-6 months.

              What would YOU do?
              I was just talking about this today, as one of my loans with NZHL is approx $760k @ 7.35% until Nov 2011, but was thinking about this very scenario of whether it would be better to break now, revert to floating, and then refix.

              I think I might have to meet monkeyboy or scoob, over a pint or two of guinness to talk about my options

              Good topic anyway Jo, and I will follow with antici....................pation!

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              • #8
                Hi Jo,

                Seems to be a topic we have all been thinking about over the last few days.

                Quote from the herald today:

                "For someone with a 3.25 per cent cut in interest rates - assuming banks pass it on to customers - would mean a saving of $541.60 a month."

                Confused also what to do now also. Our home loan comes of fixed next march, with other loans coming off over the next 9 months. (rentals) Current home loan is set at 9.65%

                Is it best now to break the term and go floating or break the term, bear the costs and go with the new rates at a 6 month term? Im guessing that in 6 months time the rate could be less but it also is not guaranteed!

                A tricky one.

                FH
                Last edited by freezinhot; 25-11-2008, 10:03 PM.

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                • #9
                  I thinking that it is good to break, and sooner rather than later, as the longer we wait, and the lower rates drop, the more the break fees will be.

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                  • #10
                    We have had a reply from the bank, $1000 to break our current term, if we do this now using a 6 month term, we would save $900 in 6 months time. Not worth it! Im thinking of negotiating a better break fee, maybe half. Then maybe worth it.

                    Or wait until march next year and refix.

                    Any thoughts. Sorry to steal you thread Heg

                    FH

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                    • #11
                      Originally posted by freezinhot View Post
                      Any thoughts. Sorry to steal you thread Heg

                      FH
                      Not stealing my thread at all Pat - It's good to see what others are being "offered" by their banks in terms of break fees etc.
                      Jo Birch
                      Looking for someone to manage your next project or event? Then call now!
                      +61 450 148 678

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                      • #12
                        FH if your fix is up in March I would just wait,
                        and Heg the reason your broker will advise you not to break the loan is because it is not in their personal interest for you to do so I beleive they will have to pay their fee back they got in the first place for you taking the loan out. This may be just if you take the property away all together but of course that is what alot of us do anyway isn't it? Find teh bank that will offer us the best deal.

                        good Luck Robyn

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                        • #13
                          Like a lot of ppl at the moment, I looked at breaking and rang my bank to find out what the break fees would be. It wasn't worth my while to do it.

                          The penalty interest is the difference between the old rate and the new rate, therefore over the fixed term of the loan, breaking and paying the fees is not a viable option.

                          However, should the interest rates drop dramatically (as is happening these days) where you "make" money is the lower interest rate payments. It's a gamble that one needs to look at very carefully.

                          What would happen if one broke a perfectly good rate to go floating to save money, the environment changed and the interest rates when up??!! This is a scenario that is perfectly feasible.

                          Try and GUESS what the rates will be in 1-2-3-4 years of the loan left. Are you going to stay Floating for that whole period?? Are you going to fix for a shorter period? Is there a chance of getting caught out by trying to interest rate averaging?? Lots of curly questions, that really at the end of the day, no amount of advice from other people will help you make your decision.

                          That decision is yours and yours alone. Having a crystal ball and trying to see into the future?? Priceless.
                          Patience is a virtue.

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                          • #14
                            Originally posted by essence View Post
                            What would happen if one broke a perfectly good rate to go floating to save money, the environment changed and the interest rates when up??!! This is a scenario that is perfectly feasible.
                            Interesting point. I think most banks are banking on a 1%+ cut next round. If it is only 0.75%, rates would need to go back up, at least in the short term. My view though is that RB will need to drop 1% just to match market expectations, otherwise it could have a negative impact on the already shaky enviroment.

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                            • #15
                              Originally posted by Heg View Post
                              Not stealing my thread at all Pat - It's good to see what others are being "offered" by their banks in terms of break fees etc.
                              Yes you brought up a very interesting subject Jo, and so relevant to whats going on at the moment. If only I knew what the future holds for interest rates.

                              FH

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