What is a break cost?
What is a break cost?
A break cost is a fee that represents our loss if you repay your loan early or switch your product, interest rate or payment type during a fixed rate period.
Why do we charge break costs?
When we agree to lend you money at a fixed interest rate, we obtain money from the money market at
wholesale interest rates based on you making your payments as agreed until the end of the fixed rate
period. If you don’t, and wholesale interest rates change, we can make a loss.
When do break costs apply?
If you prepay part of or your entire loan before the end of your fixed rate period, you must pay us the prepayment break cost we calculate and an administration fee, unless the amount you prepay doesn’t exceed the prepayment threshold.
If you switch to another product, interest rate or payment type before the end of your fixed rate period, you must pay us the switching break cost we calculate and an administration fee.
What is the prepayment threshold?
The prepayment threshold is the amount that we allow you to prepay on your loan during the fixed rate period without incurring a prepayment break cost. This amount is $30,000.
To calculate how close you are to reaching your prepayment threshold you add together all of the amounts that you have prepaid and deduct any amounts you have redrawn. You will only exceed your prepayment threshold once the result is more than $30,000 at any time during the fixed rate period.
How are break costs calculated?
Our break costs formula is complex. This is a simplified description. We will incur a loss and you will have to pay break costs if, on the day a prepayment or switch is made, the wholesale interest rate applicable for your remaining fixed rate term is less than the wholesale
interest rate applicable when you began your fixed rate period. We refer to this as the ‘difference in wholesale interest rates’.
To calculate the amount of the break costs, we multiply the difference in wholesale interest rates with the remaining term in your fixed rate period and the average loan account balance that would have applied during that time if you had not made any prepayments. The amount is then converted to its value in today’s dollars.
Please contact us if you would like to see the formula used to work out the break costs.
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These are FAQs on how and when to obtain a break cost quote
Wholesale interest rates change daily, and the changes can be significant especially if wholesale interest rates continue to decrease. Break costs are valid for 5 business days from the day they are calculated.
The wholesale interest rate is commercially sensitive and not displayed publicly. There is no way to predict what the wholesale interest rate will be and it changes frequently subject to market conditions. Movement in Westpac’s Variable or Fixed rates do not form part of the calculation we use to establish if a break cost is applicable.
The decision to break your fixed rate loan is entirely up to you however a break cost may be applicable. Your decision may be affected by the amount of interest you may save at a lower interest rate versus the cost to break the loan. Westpac encourages you to seek independent financial advice before choosing to switch or prepay any amount on a fixed rate loan. Westpac also encourages you to seek independent financial advice when considering whether or not to fix your rate.
To find out whether a break cost will be applicable for your loan, please call 132 558 to request a quote.
As noted above break cost quotes are valid for 5 business days from the day the break costs are calculated. If you decide to proceed with breaking your fixed loan, your request needs to be submitted within the 5 business days for the quote to be honoured. For example, for a break cost calculated on Monday 24th November, the request must be lodged by close of business Friday 28th November.
Be careful with break costs:
Break costs may be high - sometimes tens of thousands of dollars. Ask us for an estimate of the break costs and seek independent financial advice before you repay early or change your loan.