Bank Penalty

[Rohb]

CAN any1 tell me how you calculate bank penalties???
I got a 40K [email protected]% over 4 yearsI just like to know the figures before I approach them.IAm Thinking of refinancing it with another bank.

[SuperDad]

Rohb,

In my experience (with westpac), break fees were set at $300 per loan.

Paul.

[captaincrab]

Sometimes they work on a "nett loss"basis. by this I mean they look at what they can lend the money for today. If interest rates are high, they can re-lend the money and not suffer a "loss" but if they are lower, and they cant lend at the same rate, then they will pass that "loss" off as the break cost.

[roseneath_rat]

Break fees will usually be in correlation to the interest-rate differential between your rate of borrowings & the market rate of borrowings.

Look at it this way:
If you have your loan locked in at 8.1% for the next four years, and their current lending rate is 7.5% then they are effectively making more profit from you than a new borrower. If you were to cancel that loan, they will charge you the difference as a fee. Much of this is cancelled out by the interest-savings that you collect in refinancing it.

In the opposite scenario if you are locked in below the market rate (say currently fixed at 6.95% relative to a market rate of 7.5%) there should be little if any break cost. They don't generally refund you the difference, in fact they may still ping you a fee of a couple hundred dollars for breaking the loan early even though it doesn't cost them anything.

[whitt]

If breaking with same bank then fixing at a higher rate break fee normally nil.
If breaking/going lower or elsewhere I think It ends up being around 2-3 months penalty interest.
There is normally a mind blowing formula in you loan docs somewhere which explains it.

[Rohb]

.........

THANKS GUYS...I taught it will be huge penalties..

[xris]

Break fees will usually be in correlation to the interest-rate differential between your rate of borrowings & the market rate of borrowings.

Look at it this way:
If you have your loan locked in at 8.1% for the next four years, and their current lending rate is 7.5% then they are effectively making more profit from you than a new borrower. If you were to cancel that loan, they will charge you the difference as a fee. Much of this is cancelled out by the interest-savings that you collect in refinancing it.

In the opposite scenario if you are locked in below the market rate (say currently fixed at 6.95% relative to a market rate of 7.5%) there should be little if any break cost. They don't generally refund you the difference, in fact they may still ping you a fee of a couple hundred dollars for breaking the loan early even though it doesn't cost them anything.

A good, clear, explanation.

xris

[Rohb]

THANKS again,Can any one of you recommend a good bank??What do you think of ASB or KIWIBANK??

[kalovatt]

My personal experience of Kiwibank was very good. I had 5 IP's with them at one stage, as well as my main operational rental account. I was one of their first customers. The interest rates were (and probably still are) well below most others and I did not pay a single cent in fees. Highly recommended

[muppet]

Check out latest interest rates at:

http://www.interest.co.nz/mortgages.asp

[tricky]

THANKS again,Can any one of you recommend a good bank??

A good bank lends you money.

[RentMaster]

THANKS again,Can any one of you recommend a good bank??What do you think of ASB or KIWIBANK??

I am with the ASB and have no complaints. Their customer services phone number is very quick and you only ever speak to one person who deals with the issue. Good internet banking etc. Interest rates are probably not as low as kiwibank.

[jccc]

On a related matter...

My bank lent me a lot of $ at 6.79%. I wanted to make extra principal repayments due to a change in circumstances.. but this would incur a fee... so I have put the cash into an on-call account earning 7.2% with the same bank! (I get the tax on the interest back - but from the bank's point of view they are giving away money, yet want to charge a fee for me to save them $).

[whitt]

jccc
Check you loan details as some loans let you make extra payments with no penalty. Usually up to $10 K PA.
Otherwise you can work out the penalty and weigh it up to what you will save in interest.