Today we were contacted by Chris who has a Westpac mortgage with a loan balance of $979,815
The interest rate they were paying today was 4.80% and it is fixed until 24/10/2019 (6-months remaining) but Chris wanted to know if it was worth paying a break fee and getting onto the lower rates being offered by the banks.
First We Needed The Westpac Break Fees
With a loan balance of $979,815 fixed for another 6-months at 4.80% there was obviously going to be a break fee.
There are websites that have break fee calculators including the Sorted website and some broker websites but they are not very accurate.
The easiest way to get the Westpac break fees quoted is to contact the bank.
As mortgage brokers we often will contact the banks to check on break fees and to source competitive home loan interest rates, so we did this today for Chris.
The break fees change daily, but the fee today was $2,040.25 which was less than expected and less than Chris expected after trying the online calculators.
So What Are The Savings Versus The Break Fee?
As mortgage advisers we will often be asked if it’s a good idea to break a loan and refix it.
We advised Chris that if he was to break the current fixed rate loan at 4.80% we could offer 3.99% for either 1-year fixed, 2-year fixed or 3-year fixed.
The difference in the interest rates is 0.81% so on his loan of $979,815 that would save him $661.38 monthly in interest paid.
So over the 6-months remaining on his fixed rate that would equate to a saving of $3,968 but with a break fee of $2,040.
Overall that is a saving of $1,928 so it was obviously a good idea to pay the Westpac break fees and refix at the lower rate.
Restructure & Pay The Mortgage Off Faster
The savings were obvious and Chris did not hesitate and asked us to go ahead with breaking the existing fixed loan so that he could take advantage of the lower rates.
The savings of over $660 a month was huge.
But there was a bigger opportunity that Chris has not even considered.
His loan had 27-years to run and he had always just paid the minimum that the bank had calculated for him.
Today I showed Chris that instead of pocketing all the savings, if he paid $600 a month more on his mortgage he could pay the loan off 5-years quicker and save over $160,000 in the interest that he was going to pay.
That’s a simple was to eat your mortgage and get it paid off early.
Now that’s a compelling reason to speak to a mortgage adviser!
