Seabird

We have just been conned out of $41,000 by the Commonwealth bank in exit fees for selling our house at the end of the first year of a 5-year fixed rate loan. Because of the drop in interest rates, if the bank now relend that money it would be at a 4% lower rate (due to drop in interest over the last 12 months)... so... WE have to pay the difference :curse:

emelems

Is that legal?

Em x

Wendy

Full terms are in the conditions of the loan when you borrow the money, and most fixed rate loans will charge it for paying off early.


UK site:
Fixed rate mortgage:This is a mortgage that is charged at a fixed rate within a set period. There are often early repayment charges applicable if the loan is repaid within the fixed period.


http://www.mortgages2homes.co.uk/glossary.php#link25

Aus site:
Fixed-rate loans

The interest rate is fixed for a period, usually between one and five years, after which a new fixed rate can be agreed, or the loan can revert to the lender’s standard variable rate.
A fixed-rate loan can be wonderful if interest rates go up, but very expensive if they go down. Fixed rate loans may also penalise extra repayments.
Trap: if interest rates are expected to rise, the fixed rate is likely to be above the variable rate. If the rate is expected to fall, it could be lower. Make sure you understand break costs and other conditions before you sign. Look out for fixed loans that allow you to make extra repayments without penalties (for example $10,000 per year).


http://www.choice.com.au/viewArticle...se+a+home+loan


You would probably find the same info for every country in the western world.

Kalenge

It's not specific to Australia. That's always the situation of a fixed rate loan. As the name suggests it's a Fixed rate over a Fixed period. If you break the terms of the agreement then it's standard practise that you will pay compensation. The fees that you'll pay are exacerbated by the dramatic change in interest rates, but you'll find it's the same situation back in the UK.

MTPockets

No, I've never heard of that in the UK. Charges are usually a function of either the amount orginally borrowed, the amount left to pay (capital), or a set number of months. I've never heard of any where you have to pay something related to the difference between your fixed rate and where todays rate is.

If that's legit I'm starting to understand why Aussie banks are 'so well capitalised'...

Kalenge

I'm assuming it's because the OP took out another mortgage with the same lender, but now at a much lower rate than what they previously had.

MTPockets

Maybe although they didn't mention switching, but even if they are it's still a ridiculous charge. I know there's always a risk with fixed rates - and some charge incurred - but that's extortionate if extended across life of mortgage.

On the one hand you have a government looking to spend billions on handing money out to help people out, extending guarantees to banks to make their funding cheaper and the RBA cutting 4% in 6 months to lower debt costs - yet this charge must force a lot of people locked into higher rates to stay there (defeating the point of the other efforts). I'd have a good argument with the bank personally. I had a look at the CBA website and noticed they also charge $8 monthly mortgage management fees. mmmm the banks here get away with muder. Rant over...

daddyofthree

We will be charged £12,500 for early redemtion next year if we can sell the house Newcastle UK
It's nothing unusul

Wol

People have a choice whether to take the risks of variable or fixed rate loans.

It's all very well having a fixed rate mortgage and telling your variable neighbours how clever you have been when *their* rates go up but it does rather limit your whingeing rights when the reverse happens.

You can't expect a lender to plan for a long term fixed rate loan and just write it off when interest rates come right down and the borrower wants to jack out and remortgage at a much lower rate.

Geelong Gent

Agree and in the UK the fee is usually stated quite clearly and was always pointed out to us by our financial advisor. Can distinctly remember evaluating switching back in the late 90's and doing the calculation of saving on new rate less cost of moving.

Whinging about the downsides of fixed rates is like taking a punt on the melbourne cup and when your horse does not come in asking for a refund.

comet555

This is precisely the reason we decided early on to never take a fixed rate. Sometimes you just don't know when you want to sell your house, you can guarantee it's not going to be exactly when your loan terms ends.

It's variable all the way for us! We know we'll be selling the house in another year or two so there was no point in going for a fixed with the exit fees they charge.

ABCDiamond

Yes, it is legal and normal, on all Fixed rate loans.

However, some banks do not explain this fully to borrowers, and if you can prove that they did it wrong, then you can go to court and reverse it.

Something similar happened to me in the UK, I went to court, but they chose not to turn up, and I won the case by default

One way that a fixed rate works is:
You agree a rate of say 9% for 5 years
The lender borrows somewhere else at a fixed rate for 5 years of say 8%, so they can supply you with that money for 9%, making their profit on the difference.

You have to pay that 9% for 5 years, as you agreed to it, so that they can pay the people they borrowed from.

• Never get a fixed rate mortgage if you think you may be selling within the term.
  
• Never believe the lender when they say the costs of breaking the fixed rate loan is only a couple of thousand. That is only their normal fee, they then add the break costs on top, and the break cost is the remainder of the interest you haven't yet paid, less anything they can re-coup at current rates.

Seabird

Thank you for such a helpful response to my post. This really gives people somewhere to look in the right direction.

I really put the message up purely to warn others before they sold their houses and were unaware of this result from the declining interest rates. This post allows them to look into things in the right places and hopefully it will save others from making the wrong decision out of naivety and lack of proper advice.

Thank you again.

Seabird

milly123

We are in the same position, Also with the Commonwealth Bank.

Got the mortgage 12mths ago, Fixed the rate for 3yrs ( AS Advised By Bank as rates were on the increase ). Sold in the first 6mths, Penalty would have been $9,000 at that time. Advised again by the bank to term deposit the mortgage, so we could purchase again straight away with no loss. Circumstances changed, Now advised Penalty pay out would be $38,000.

milly123

The only way you can sell and not pay the penalty is if you, re buy straight away and transfer the mortgage or you term deposit the mortgage till you find something to buy. Worst of two evils but at least you dont pay the penalty, but you also dont get out of the tie in interest rate either.