If your circumstances change and you need to break the fixed rate period of your loan, any Break Cost we charge will be based on a number of factors including current interest rates, your outstanding loan balance and how long you have remaining on the fixed rate period of your loan.
The Break Cost is calculated as follows:
being repaid early XRemaining term of
the fixed rate periodXDifference in Wholesale Interest Rates=Your Break Cost*
*This amount is then reduced to adjust for the present day value.
Katie borrows $300,000 for her first home and takes out a loan with a 3 year fixed interest period. Katie pays off her Home Loan after just 1 year, leaving 2 years remaining on the loan’s original fixed term.
On the date Katie’s original loan was fixed, the 3 year wholesale interest rate was 2.15% p.a. When Katie repaid her fixed rate loan (with 2 years remaining of the original 3 year term), the 2 year wholesale interest rate was 0.73% p.a.
The difference between the wholesale interest rates on the date Katie’s fixed rate loan was first fixed and the date that Katie paid out her fixed rate loan 2 years early, is called the interest rate differential.
Katie’s Interest rate differential: 2.15% - 0.73% = 1.42%
Based on this interest rate differential, Katie’s approximate Break Cost would be:
$300,000 x 1.42% x 2 = $8,520
Katie’s Break Cost would then be reduced to provide a present value as at the date of the early repayment of the fixed rate loan.