WESTPAC WARNING!!!
#16
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If your loan contract has not disclosed how the break fee will be calculated then it will be unenforceable under the legislation that governs consumer finance (the CCCFA).
If it was disclosed then they will need to show you the actual calculation, and I am struggling to see how any calculated amount could be anywhere near that amount. For example a $300,000 mortgage with 2 years to go and with wholesale swap rates say down by 2% would give less than $12,000 (after discounting back to today's value). Even then it is very arguable that retail rates will have dropped less than the 2% drop in wholesale rates.
Any other admin fee they may charge must be reasonable and probably should be no more than $250 tops.
If it was disclosed then they will need to show you the actual calculation, and I am struggling to see how any calculated amount could be anywhere near that amount. For example a $300,000 mortgage with 2 years to go and with wholesale swap rates say down by 2% would give less than $12,000 (after discounting back to today's value). Even then it is very arguable that retail rates will have dropped less than the 2% drop in wholesale rates.
Any other admin fee they may charge must be reasonable and probably should be no more than $250 tops.
gives a very simplified description of the formula that they might use - it goes onto state that this is not the formula prescribed by the Credit Contracts and Consumer Finance Regs 2004
The prepayment quote that the Westpac branch kindly printed off for us today gives no detail of how this astronomical figure was worked out apart from saying that the penalty is charged if the interest received from reinvesting the repaid money is not enough to cost the interest paid by the bank...
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yes - Aus it is and we are beginning to think this may be a way forward although we wanted to wait a bit before buying (if we ever do again!!)
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Hi all
Anyone with fixed-rate mortgages with Westpac BEWARE - we have just been told that we will have to pay a $15,000 penalty charge for re-paying it early as we are moving overseas !!! :curse:
We are still reeling from the shock so details will be brief at present...
Needless to say no one warned us at the outset of the loan quite how severe penalty could be - in fact all the loan publicity just mentions that you 'may' or 'could' have to pay a penalty
Of course no one at Westpac willing to grab handles on this one and branch manager only agreed to see us after we refused to leave - but she was visibly shocked by what we told her and is taking it further as a 'higher level complaint'
We won't be taking this lying down but are in need of plenty of drinks tonight as a starting point!!!![Wink](https://britishexpats.com/forum/images/smilies/wink.gif)
Dave and Cat
Anyone with fixed-rate mortgages with Westpac BEWARE - we have just been told that we will have to pay a $15,000 penalty charge for re-paying it early as we are moving overseas !!! :curse:
We are still reeling from the shock so details will be brief at present...
Needless to say no one warned us at the outset of the loan quite how severe penalty could be - in fact all the loan publicity just mentions that you 'may' or 'could' have to pay a penalty
Of course no one at Westpac willing to grab handles on this one and branch manager only agreed to see us after we refused to leave - but she was visibly shocked by what we told her and is taking it further as a 'higher level complaint'
We won't be taking this lying down but are in need of plenty of drinks tonight as a starting point!!!
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Dave and Cat
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hye we had a mortgage last year with westpac and paid it off within a few months as we were waiting for cash from uk i am sure we had no penalities dont take this lying down fight for your cause kiwis have an belief that all those from uk are rich and in our case rip you off we have lost so much money wud take all night to type it will be very interted to see how you get on good luck !!!!!!!!!!!1
we're not going to give up without a fight (although at moment we're just trying to gather some strength for it!)
we'll let you know how it goes..
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If you don't mind me asking - what is your loan rate compared to the current rate for the same fixed term?
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johnokiwi (and everyone else) - you don't need a crystal ball, but you do need a bit of Kiwi 'know-how' to avoid what happened to you (although I would have thought this kind of 'know-how' would be necessary in UK as well?) . Basically, the trick is to break your fixed loan before your lender actually has time to reduce the rates, and to go on to the floating rate until you either sell, or the fixed rate comes down to where you're happy to fix again.
For instance, the OCR was just cut by 1% on Thursday - everyone knew that was almost certainly going to happen for some weeks now, but until the RB actually announced the OCR cut - again, that everybody was already expecting - the vast majority of banks here did NOT reduce their fixed rates. As soon as the talk started about the OCR cut, one should have been ready to break the fixed rate. But even after the OCR cut announcement, most of the banks did not cut their rates until yesterday (Friday) although the announcement was made on Thursday. That gave time for most poeple to still break their fixed rates before the new rates took effect, and thus avoid paying as penalty the difference (or loss to the bank) in interest rate over the remaining term of the loan.
In your case, sounds like there's more to the penalty than just the difference in interest rates though? Your real estate lawyer is supposed to go over the terms & conditions of your mortgage contract with you before you sign it, and I must say with our first mortgage here we were very concerned when our experienced lawyer could not explain that bit about 'may or could incur a penalty'. We have taken out more mortgages since then, and have same problem: no CLUE as to what penalties, other than the obvious 'difference in interest rates for remainder of loan', we could possibly face based on the contract we have, as it has never been satisfactorily explained to us, and 'may/could' are scary possiblities to sign your name to!! But we signed anyway, hoping to god that we could trust the laid back attitude about this clause.
Anyway, as another poster mentioned, 'reasonable' has to come into play when a contract does not clearly spell potential penalties out. You are not alone with this problem, there were a few news stories last week about others being outraged about much higher than expected penalty costs, and it mentioned that these situations 'would be looked into' . However, they were talking in the $4000 range, and you're talking $12,000
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Keep us informed, could help others in future.... Good luck
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johnokiwi (and everyone else) - you don't need a crystal ball, but you do need a bit of Kiwi 'know-how' to avoid what happened to you (although I would have thought this kind of 'know-how' would be necessary in UK as well?) . Basically, the trick is to break your fixed loan before your lender actually has time to reduce the rates, and to go on to the floating rate until you either sell, or the fixed rate comes down to where you're happy to fix again.
For instance, the OCR was just cut by 1% on Thursday - everyone knew that was almost certainly going to happen for some weeks now, but until the RB actually announced the OCR cut - again, that everybody was already expecting - the vast majority of banks here did NOT reduce their fixed rates. As soon as the talk started about the OCR cut, one should have been ready to break the fixed rate. But even after the OCR cut announcement, most of the banks did not cut their rates until yesterday (Friday) although the announcement was made on Thursday. That gave time for most poeple to still break their fixed rates before the new rates took effect, and thus avoid paying as penalty the difference (or loss to the bank) in interest rate over the remaining term of the loan.
In your case, sounds like there's more to the penalty than just the difference in interest rates though? Your real estate lawyer is supposed to go over the terms & conditions of your mortgage contract with you before you sign it, and I must say with our first mortgage here we were very concerned when our experienced lawyer could not explain that bit about 'may or could incur a penalty'. We have taken out more mortgages since then, and have same problem: no CLUE as to what penalties, other than the obvious 'difference in interest rates for remainder of loan', we could possibly face based on the contract we have, as it has never been satisfactorily explained to us, and 'may/could' are scary possiblities to sign your name to!! But we signed anyway, hoping to god that we could trust the laid back attitude about this clause.
Anyway, as another poster mentioned, 'reasonable' has to come into play when a contract does not clearly spell potential penalties out. You are not alone with this problem, there were a few news stories last week about others being outraged about much higher than expected penalty costs, and it mentioned that these situations 'would be looked into' . However, they were talking in the $4000 range, and you're talking $12,000
I really don't think they will be allowed to get away with this in your case, but unfortunately it could be a hassle getting it sorted.
Keep us informed, could help others in future.... Good luck
For instance, the OCR was just cut by 1% on Thursday - everyone knew that was almost certainly going to happen for some weeks now, but until the RB actually announced the OCR cut - again, that everybody was already expecting - the vast majority of banks here did NOT reduce their fixed rates. As soon as the talk started about the OCR cut, one should have been ready to break the fixed rate. But even after the OCR cut announcement, most of the banks did not cut their rates until yesterday (Friday) although the announcement was made on Thursday. That gave time for most poeple to still break their fixed rates before the new rates took effect, and thus avoid paying as penalty the difference (or loss to the bank) in interest rate over the remaining term of the loan.
In your case, sounds like there's more to the penalty than just the difference in interest rates though? Your real estate lawyer is supposed to go over the terms & conditions of your mortgage contract with you before you sign it, and I must say with our first mortgage here we were very concerned when our experienced lawyer could not explain that bit about 'may or could incur a penalty'. We have taken out more mortgages since then, and have same problem: no CLUE as to what penalties, other than the obvious 'difference in interest rates for remainder of loan', we could possibly face based on the contract we have, as it has never been satisfactorily explained to us, and 'may/could' are scary possiblities to sign your name to!! But we signed anyway, hoping to god that we could trust the laid back attitude about this clause.
Anyway, as another poster mentioned, 'reasonable' has to come into play when a contract does not clearly spell potential penalties out. You are not alone with this problem, there were a few news stories last week about others being outraged about much higher than expected penalty costs, and it mentioned that these situations 'would be looked into' . However, they were talking in the $4000 range, and you're talking $12,000
![EEK!](https://britishexpats.com/forum/images/smilies/eek.gif)
Keep us informed, could help others in future.... Good luck
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But you're right there are others in same boat and will be increasing now that the interest rates have changed - the banks can't go unchallenged - our boxing gloves are on!
Our complaint has gone to the Ombudsman (who is actually a woman!) and we'll see what Westpac have to say in round 1 !!
As for our lawyer, we'll be seeing her on Tuesday to see what she has to say - we can't recall her drawing our attention to penalties at all, but we suspect she may be passing this particular buck..
watch this space...
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#27
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Thanks - we'll need it we think - we're not looking forward to the battle/hassle we face![Unsure](https://britishexpats.com/forum/images/smilies/unsure.gif)
But you're right there are others in same boat and will be increasing now that the interest rates have changed - the banks can't go unchallenged - our boxing gloves are on!
Our complaint has gone to the Ombudsman (who is actually a woman!) and we'll see what Westpac have to say in round 1 !!
As for our lawyer, we'll be seeing her on Tuesday to see what she has to say - we can't recall her drawing our attention to penalties at all, but we suspect she may be passing this particular buck..
watch this space...
![Unsure](https://britishexpats.com/forum/images/smilies/unsure.gif)
But you're right there are others in same boat and will be increasing now that the interest rates have changed - the banks can't go unchallenged - our boxing gloves are on!
Our complaint has gone to the Ombudsman (who is actually a woman!) and we'll see what Westpac have to say in round 1 !!
As for our lawyer, we'll be seeing her on Tuesday to see what she has to say - we can't recall her drawing our attention to penalties at all, but we suspect she may be passing this particular buck..
watch this space...
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From my experience some financial institutions have treated the wholesale price as a proxy for the retail rate in setting up their systems for break fee calcs. That might be Ok in normal times, but with the way things have gone in recent months retail rates have decreased less than wholesale (the price of credit risk has gone up). For example on interest.co.nz your bank is still quoting 8.60% for standard 5 year mortgages today. Even if one could get a bit of a discount on that (as I'm sure you probably did when you took out your mortgage - say down to 8.3%), the interest rate differential would be less than 1%. This interest rate differential is the most important factor that will be used in any calculation, and so it is important it is right.
Also their calculation (and I think I mentioned this also) should always discount the monthly cost back to today's value (and over the best part of 5 years this will make a bit of difference too!)
I'm sorry the above may all sound a bit complex, but unfortunately the legislation is complex.
All the best.
ps if you are interested here is the formula that must be used if no alternative formula is defined in the contract. CCCFA Regulation 11 If you like a quick check is that the amount calculated with the above formula should always be a bit less than [outstanding balance] x [retail interest rate decrease] x [remaining fixed term].
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