Mortgage Matters

4 mortgagematters

How can I pay for my break fee?

As you will be aware, rates have dropped over the last couple of months, with capacity to go even further!

Unfortunately, for some of us to take advantage of the cheaper rates means breaking the loan and incurring a “break fee”.

Assuming you want to break the loan, what options do you have?

1) Pay for the fee out of your own cash. If the fee is small (say, a couple of hundred dollars), then don’t muck around! Break fees are calculated daily and subject to change. 2) If the loan was for a rental property, then the fee could be tax deductible. Please check with your tax consultant, but generally a break fee is a business cost for an investor. 3) Get a new lender to help pay all or some of the fee to secure your business. There is a limit to how much a new lender can pay, but you could get between 0.50-0.80% of the loan amount. (You will need to budget for conveyancing costs a well). 4) Ask your bank to waive the fee. This could involve some fairly robust talk about moving your business elsewhere. But there are cases of lenders waiving the fee to retain your business. The rationale being that’s it’s cheaper to do this than go find another customer. 5) If you are buying and selling a property, look to offset the fee with a bigger legal contribution from the bank. If you are upgrading your home, this is a prime time to shop around for a “good deal”, especially around the legal contribution from the bank. A higher contribution could offset any break fees, allowing you to take advantage of the cheap rates at hand. 6) Add the fee to the loan. If you have enough equity and income, this could be an option. However, bear in mind that, by placing the fee on the loan, you could be paying more interest in the long term.

Please note that bank criteria and market conditions are subject to change.

For further details, feel free to contact Ivan on 09 427 5870 or 0275 775 995 or email ivan@ivanurlich.co.nz Ivan Urlich is a registered financial adviser specialising in mortgages. His disclosure statement is available free of charge on request.

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