Bank break fees-examples wanted

[OllyN]

I am incensed at the fees banks charge borrowers to break loans in an endeavour to obtain a lower interest rate and possibly save their homes.

People should be reminded that the banks have now been guaranteed against failure by the government- that means you and me-and you would think that under the circumstances they could make a few billions less profit for one year and give everyone a fair go.

I have dealt with may such cases in recent weeks and typically one bank (under pressure of public exposure from me) graciously allowed one struggling couple to reduce the interest on a $650,000 loan from 9.75% to 6.4% - but for a fee of $45,000 to be added on the end and on which interest still has to be paid.

I invite those of you who have more examples of these vile practices to post them here for all to see.

read http://www.nzherald.co.nz/business/n...ectid=10549106

[lima]

Recent ERA example.

On 05/12/2008 I paid ERA of $1800 to Bank Direct to break a $45,446.00 that was on 9.6% (2.5 yrs to go) to a temporary floating rate - as I'm refinancing with Kiwibank at 7.?% shortly.

$1800 seems comparatively high for a mere $45,446.00.

I have 2 other mortgages with Bank Direct at 9.5% - one expires next May - will suffer interest rate till then - then move it to Kiwibank. the other mortgage - I've voluntarily increased the repayments to max allowed - to reduce the principle - as an alternative to paying another ERA fee. As principle whittles down the interest rate won't seem so bad.

Cheers - Lima

[watchful]

Good thread.

Can't confirm the exact amount but our neighbours (who are selling - and I believe had a fairly good offer recently) have decided to put the sale on hold as the bank now wants about 40K to break the loan.

As an aside, are vendors obliged to pay the bank back immediately when the property is sold, or are they able to invest the sale proceeds (with the hope of beating their mortgage rate NET) without the collateral of property to secure the loan?

[Keys]

I am incensed at the fees banks charge borrowers to break loans in an endeavour to obtain a lower interest rate and possibly save their homes.

Why? It was (presumabely) in the mortgage contract.

People should be reminded that the banks have now been guaranteed against failure by the government- that means you and me-and you would think that under the circumstances they could make a few billions less profit for one year and give everyone a fair go.

So, will you be champening the cause of the banks poor returns when (yes when) current interest rates are higher than someones fixed term (say by 3%)

I have dealt with may such cases in recent weeks and typically one bank (under pressure of public exposure from me) graciously allowed one struggling couple to reduce the interest on a $650,000 loan from 9.75% to 6.4% - but for a fee of $45,000 to be added on the end and on which interest still has to be paid.

So? That's negotiation. I find this entire thread smacks of hyprocrasy.

I invite those of you who have more examples of these vile practices to post them here for all to see.

I have seen your posts and publications where you have lauded the fun you can have as a commercial owner/landlord.

The joy you seemed to pass on when some poor shmuck ended up close to bankrupcy or even there as a result of the "contract" you had with them and the personal guarentee written into the lease agreement.

Did I not read in one of your books that a shirt slapped onto a roof and then painted over makes a good repair just before you sell it?

I think it's a bit rich for you to talk about vile practices.

[Gibber]

People should be reminded that the banks have now been guaranteed against failure by the government

That isn't my understanding.

My understanding is that, in the event a bank fails, the depositors money will be covered by the government.

That is a completely different scenario to guarantee the bank against failure.
The bank can still fail. But the depositor will get their money back.

If the bank fails then all the staff are out of work.
If the bank fails the shareholders don't get a dividend.
If the bank failed, prior to the government guarantee, the depositor might have not got any money back.

The government guarantee was put in place to prevent bank runs. The Irish started it all by guaranteeing their banks deposits. Money very quickly started being moved out of UK banks to the Irish banks. Eventually many countries ended up guaranteeing bank deposits to stop people taking their money out of banks that did not have deposit guarantees and putting them into banks in countries that did have deposit guarantees.

If I have the wrong perception then please provide a link to where it states the banks are guaranteed against failure. As opposed to the depositor being guaranteed to get their money back in the event of bank failure.

[Davo36]

Keys, I was thinking the exact same thing.

The borrowers have entered into a contract to pay x% on their mortgage. If the OCR had gone up and interest rates with it, they'd be laughing.

And then how would they feel if the banks decided to 'renegotiate'. We'd all find that unpalatable.

These people just have to bear it out or pay the fees and break out of the contract.

Surely it's all just about taking responsibility for your decisions! It seems to be a rare things with everyone getting bailed out by governments these days.

David

[Bob Kane]

There's two types of people wanting to break their fixed mortgages:
- those who are in trouble and need drastic action to reduce their expenses.
- those who are comfortable but would like some free money at the banks expense.

[mattnz]

My thoughts are the same as others here.

If you couldn't afford to borrow $675k at 9.75% (I certainly know I can't even on a very good salary) then you shouldn't have put yourself in that position in the first place.

The "break fee" is only the bank ensuring that it covers the cost of borrowing at the time the fixed loan was taken plus their normal profit margin. It is not some supernormal profit that banks make. If our banks were stupid enough and unregulated enough to allow everyone to get away with not paying what they owe, then the entire economy would be on the ropes as has happened in the usa.

If there was no such cost everyone would always fix, then break the contract for nothing if interest rates dropped. A fixed rate is exactly that, an agreement to pay a set amount for a set period, no more if the rate increases, no less if the rate decreases.

Olly, if you entered into an agreement to buy a house in 24 months time and paid a 45k deposit, then house prices dropped by 45k in that period, you have no right to ask for a reduced house price as you have signed a contract. It is no different here.

[OllyN]

It's personal attacks such as "Keys" outburst that makes posting on this forum feel futile and a total waste of time. I have no problem in discussing the pros and cons of a topic and whether certain views are right or wrong. But it is the personal and anonymous abuse that bring this whole forum into disrepute. PropertyTalk is a very useful site. It is a great shame that it is being totally ruined by "Keys" and others like him. No wonder that so many useful contributors have given up using this site for putting up their views.

[Shalodge]

Hang on Olly ... Take some breaths ... Keys and others make compelling points and I agree with them on this occasion. That dosnt mean that you haven't made some excellent posts in the past, particularly on the Blue Chip saga.

If youve got the ammo ... shoot back

[k1w1]

Olly, you are obviously itching to pick a fight. Keys didn't personally attack anyone. He made perfectly reasonable points.

Too bad that it's anonymous. That's the internet, mate.

I totally agree with Keys. The banks are owned by shareholders. One of those shareholders is me. I'm not about to let the company that I part-own suddenly make losses because some people didn't read the fine print, without a fight.

One word: Contract.

You break the contract, you pay the price. Everyone knows that. The banks are doing nothing that was not fully disclosed in the mortgage documents. They are operating legally. You are fighting a losing battle, IMO.

[OllyN]

If we are really in the biggest financial crisis in living memory then I claim that all rules and contracts can be broken or renegotiated through force majeure . It is no use some parties claiming that all the contracts made in the past must be honoured in the future, when clearly events have occurred that make performance impossible. All people must realise that everything has changed. If we are to survive financially then we must all be prepared to set down new rules and write new contracts in recognition of the new facts on the ground or risk being swallowed up by events beyond our control.

[Shalodge]

It is no use some parties claiming that all the contracts made in the past must be honoured in the future, when clearly events have occurred that make performance impossible. All people must realise that everything has changed.

Tell that to the Waitangi Tribunal ....

[ecoeco]

Happy to share our figures.

I broke two loans just before the latest Reserve Bank annoucement.

$150,000 - breaking fee about $4,200.
$190,000 - breaking fee about $5,300.

Both loans were fixed for 5 years back in December 07.

I would love to have not paid the fee and I do consider it pure profit for the bank. I don't think that banks should charge it. But, when I fixed the loans I knew that I would have to pay a fee if rates dropped so I went in with my eyes open and by refixing at about 2% lower I expect to save around $6,800 in interest costs per annum. I need to get the lower rates for 1.5 years to breakeven and after this I start to make a saving.

I made a mistake fixing the rates for a long period at what turned out to be the interest rate highs but no-one expected such a dramatic drop in the space of 1 yr.

I was expecting rates to drop slowly over 2008 and 2009 to reach a low for re-fixing in 2010.

[k1w1]

That sounds a little like anarchy to me, Olly.

"If you can keep your head, whilst those around you lose theirs...." etc