Controversial break fees gone?

Bruce Patten at Loan Market says a client of his needed to break a two-year fixed loan last week.

The loan had been placed with Westpac at 6.15% in December. Westpac's current advertised two-year fixed rate is 5.79%.

He had a similar experience with ANZ Bank last year - a client had taken out a three-year fixed loan with ANZ at 6.85% last August but then in November decided to break the loan and sought full repayment.

Both banks deny any policy change and offered no other explanation. "We haven't made any changes to our policies," says a Westpac spokeswoman.

An ANZ spokesman says: "Neither ANZ nor The National Bank have changed break cost formulas and continue to apply the existing methodology."

Break fees became headline news back in 2009 when interest rates dropped sharply as the global financial crisis hit.

ANZ and Westpac were among a group of banks who based their break fees on changes in wholesale interest rates, and which therefore tend to charge higher fees than other banks, such as ASB, SBS and BNZ. A Westpac case which made headlines in August 2009 involved a break fee of $97,000 on a $735,000 mortgage.

However, an investigation by the Commerce Commission concluded in May 2010 by announcing the methodology ANZ and Westpac used "is likely to produce a fee which is reasonable" and which complied with the Credit Contracts and Consumer Finance Act.

Comments from our readers

On 20 February 2012 at 10:22 am JB said:

Break Fees haven't changed at all. Westpac, Kiwi Bank, (BNZ from last year) and ANZ using wholesale interest rates in their formulae. Wholesale rates haven't dropped. Competition has seen customer rates drop. That has created a small arbitrage opportunity for some clients where they can break on to lower rates at no cost.

In essence banks were slow to drop customer rates in response to wholesale rates that dropped a few months earlier.

This won't work for banks that use customer rate in their break-fee calcs. i.e. ASB, National.

On 20 February 2012 at 10:27 am Dave said:

Nice one Bruce !! - obviously you do not prescribe to the theory that "what goes on tour stays on tour" when you have completed negotiations for your client with the lenders - try getting that deal through Westpac and ANZ now !!

On 20 February 2012 at 10:45 am maureen said:

I would say that was their lucky day as Westpac have recently charged two of my clients break fees when they have sold and repurchased and wanted to restructure with them.

On 20 February 2012 at 11:42 am Q Zhou said:

I would say that was their lucky day as well as ANZ have recently charged my clients break fees when they wanted to restructure with them.

I think the administration fee of $300 each loan is too high. ASB is the best in this case.

On 21 February 2012 at 7:48 am Andy said:

Broke all my fixed rates late last year for no break fee and no admin fee. With National Bank. Total debt less than $300k. Seems there is flexibility.

Controversial break fees gone?

One mortgage broker found recently that the controversial fees banks charged when a client breaks a fixed term mortgage haven't been charged recently.

Monday, February 20th 2012, 6:44AM 5 Comments

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