Breaching a fixed-rate home loan is a lengthy process that looks different depending on the specific procedures of your lender.
Choosing a fixed rate or a variable one when applying for a home loan is crucial, especially if you need to be more in control of your finances.
Both of these options have their pros and cons, but many borrowers end up taking the fixed-rate option because they want some degree of certainty, at least in the first few years of their loan. But what happens if you break this home loan?
What Is a Fixed-Rate Loan?
A fixed-rate loan indicates that you will be paying a fixed amount of interest on a loan for a particular period. When this period expires, you can enter another fixed-rate period, but you will not be charged at the same rate as before.
The loan is subjected to the new fixed-rate the lender is placing on new loans. When you first get this loan, the rate itself may be very convenient, but after the first period ends, your new rate may not be so affordable as before, which is why many borrowers think about breaking this contract.
What Does Breaking a Fixed-Rate Loan Mean?
Any action that would prevent you from carrying out the stipulations in your loan contract is considered a “break” from the deal. Breaking a fixed-rate loan can be:
- Switching to another lender or another home-loan product
- Refinancing your home loan with another deal
- Making extra payments beyond what is stated in the contract
- Repaying the loan in full before the end of the fixed term
In any of these cases, you are essentially breaching your fixed-rate contracts, in which case you are likely going to have to pay certain fees to your lender.
How Much Will It All Cost?
Breaching a fixed-rate home loan is a lengthy process that looks different depending on the specific procedures of your lender. Additionally, the cost of breaking the contract can also be different, depending on the lender.
The types of fees you may need to pay can include:
- The break cost
- Early exit fees
- Early repayment fees
- Some additional fees for processing paperwork
And the individual fees can vary. Banks will usually rely on a formula to calculate the break cost, for instance, and will usually calculate it by multiplying the loan amount to the remaining fixed term and the change in interest rates. This can even result in thousands of dollars in fees.
Can We Assist You?
Don’t make any loan breaking decisions before weighing your options. The team from Better Rate Mortgage will assess your situation and help you find the best solution for your home loan so that your finances are not affected.
Reach out to us today for more information about our services and find out how we can help you make better decisions regarding your home loan!