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make it! Finance and Investment Blog:

I was talking with a bank manager a few weeks back who told me something I was quite surprised to hear, and hadn’t considered, about fixed rate loans and break costs. Naturally, if you pay out a fixed rate loan early (lets say, due to a forced sale), your bank will generally sting you for lost interest in the form of break costs. How break costs are calculated seems to vary widely, but there is a situation where fixed rate loans can be escaped without break costs if you ask.

In the current environment of rising interest rates, many people are still sitting on fixed rate loans of as low as 6%. These are in general no longer profitable for the bank given that even the cash rate is now 6.75% and most fixed rates are sitting above 8% and are set to go higher due to current economic conditions here and overseas.

If you want to sell such a property, or pay it out early, for whatever reason, you may be holding back because the break costs can be significant. Your bank is likely to charge you these break costs unless you ask. I personally have a fixed rate mortgage on an investment property at 7.1% and the bank manager indicated to me that I could discharge this loan without any penalty if I choose to sell the property.

If you ever find yourself in this situation, talk to your bank manager! Note that not all…