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Large Early Mortgage Loan Repayment Bank Fees

September 11, 2012 by · Leave a Comment 

Herald on Sunday-Loan’s Detail is a devil to deal with? 

In the Herald on Sunday Page 44 August 26 2012 the follow article read like this:

Julie Spillett is fuming after being hit with a $5000.00 bill when her bank asked her to repay a fixed loan early. “I had a mortgage on a house in Invercargill and also a house in Howick which was used as security “ Spillett says. When the Howick property sold, the bank required her to pay back $76000.00 of the Invercargill property’s mortgage because the house that was being held as security had sold. The bank charged us $5402 early repayment but they had asked us to do it. We were happy to pay some back because a house had but surely we shouldn’t have had to pay a lump sum back? Why should we have been penalized for early repayment?

Solicitor Thomas Biss says the bank is within its rights. “It does seem unfair and I would feel inclined to argue that. When you sell a house you need to release the security. They entered into a term loan which they had repaid early. The terms of the break fees will have been in the loan.”

The general manager of the bank says it is common to use equity on one property to buy another. If one is sold, the bank has to adjust lending accordingly.

Based on what we know in this situation the customer bought a rental property down in Invercargill at 100% the cost price to claim maximise tax breaks. When her owner occupied property sold she had to pay back some of the loan on the rental property. The bank requested that they pay back some of the fixed loan at a cost of an early repayment fee of $5400.00.

The question I have was there another way in which this could be done without charging this early repayment fee? The answer is Yes. The bank should have offered a security swap in which they would have enough security to leave the full rental loan without paying the bank back a lump sum. I am assuming here that Julie did receive funds from the Howick property sale. The $76,000.00 instead of paying off the loan she could have invested it in a term deposit and used as additional security to meet the banks requirements. This is called a security swap. The cost to do a complete a security swap should be around $250.00. 

If you are in this situation do ask the bank about this option. If Julie then needed to use the $76,000.00 to help buy a new property she then could complete another security swap using the new property instead of the term deposit to meet the banks requirements.

If you have any questions please do not hesitate to contact Kevin at Home Loans Today. 021532569

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