What are Home Loan Break Costs?
Before 01 July 2011, if you had wanted to cancel your home loan contract before the loan term expired, you would have usually incurred break costs. It was up to each lender to determine what their break costs were and are they were also calculated differently. These costs or fees were a major deterrent for consumers who were comparing home loan rates and then wanting to switch home loans.
The Federal Government stepped in and legislated that from 01 July 2011 lenders were no longer able to charge customers who wished to repay their home loan early.
Despite these changes if you refinance your home loan you may still be charged a discharge fee from your existing lender, plus application fees or upfront costs by your new lender. There are also government duties/charges to take into account when refinancing.
Also, ifyou have a fixed rate home loan and you are still in the fixed period you may have charges because the lender is essentially going to lose its profit from you because you are paying a fixed rate which they too have had to fix from their sources. That is why the lender will calculate how much they will lose by you ending the loan contract and charge you accordingly.
Australia's leading home loan comparison site, RateCity.com.au has some great home loan calculators plus you can compare fixed rate home loans, variable rate home loans and also review our home loan guide for information when choosing a home loan.