We get asked quite often “If I sell my property, can I transfer existing lending and its interest rate to a new property?” While this used to be common, it is much less obtainable these days. Therefore, many are left facing break fees on existing lending when they sell their property to buy a new one.
When you sell one property and buy another you will likely have to break the fixed term on your lending and that leads to break fees. You’d entered into a contract with the lender that you would pay a certain interest rate over a certain period of time for your home loan, using a certain property as security for that home loan and now that contract is being broken, hence the break fees. This is the case even when taking out lending with the same bank for the new property. Fortunately, there is often a cash contribution (or cash back) on the new lending which can be used towards any break fee.
How much will my break fee be?
Depending on how far through your fixed term period you are, the fees can vary. The less time left on the term and the lower the amount of lending, the lower the fee so it’s always best to have a good strategy when fixing. If you are considering selling your property, or breaking your fixed term at all, we can request the break fees for you so that you have all the information you need to make a good decision.
When the time comes to look at fixing a rate or refixing your loan it's important to consider the plans you have for the future. For example, if you have plans to sell the property in the next two years, you wouldn’t want to fix for three years and face break fees even if the interest rate might be better. You might fix for 18 months or two years until you have a bit more certainty about what you want to do and when the time comes to sell, you won't be stung with such a big break fee.
It’s always worth talking to your mortgage advisor before locking in your interest rate to see what the best course of action is for your individual circumstances so that you can meet your goals. Get in touch with the team at My Mortgage to discuss your personal situation regarding breaking lending to refinance or buy a new property.