# Getting out of a fixed rate home loan



## Fab (13 February 2009)

I have a friend who fixed 75% of his $500 000 mortage 1 year ago at 7.83%.He fixed it for 5 years with one of the big 4 banks. Now he is about to lose his job , the investment property he bought recently has lost over 25% of his value and the bank is asking him 34k to get out of the fixed part of his loan.
Is there something he could do to get out of this bad situation ?

Cheers


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## prawn_86 (13 February 2009)

Sell up everything and buy or rent what he can afford without debt...


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## investorpaul (13 February 2009)

Fab said:


> I have a friend who fixed 75% of his $500 000 mortage 1 year ago at 7.83%.He fixed it for 5 years with one of the big 4 banks. Now he is about to lose his job , the investment property he bought recently has lost over 25% of his value and the bank is asking him 34k to get out of the fixed part of his loan.
> Is there something he could do to get out of this bad situation ?
> 
> Cheers




His best bet would be to approach the bank and say: "you and I both know the value of the property has plummeted, I understand I am on a fixed rate, but due to economic hardships I am struggling to afford the loan. If it continues you maybe forced to foreclose on me. Obviously that is not the ideal situation for you either because given the depressed housing market you will not recover the entire amount of the loan, If we can however work out a payment plan, that involves a reduction in the level of interest rates I should be able to continue paying the loan"

The benefit to the bank is:
1. They dont lose money by selling the house in a depressed market.
2. They maintain their income from having a loan on the property.
3. They dont have to wait until he has missed 3 payments before they try and force him out.
4. They avoid selling, advertising and other fees

Your mate will hopefully be able to afford the loan at the lower rate, but if not at least he can sell it himself which should help achieve a better price.


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## Glen48 (13 February 2009)

If he sells everything he gets out of the loan or do the Banks want the extra as well?


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## knocker (13 February 2009)

Sounds like your mate is in for some problems. If he is out of work i think it is possible to access your super annuantion. He can get forms from centrelink


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## robots (13 February 2009)

Glen48 said:


> If he sells everything he gets out of the loan or do the Banks want the extra as well?




hello,

banks want extra to break the FIXED term contract, and fair enough you have to read the fine print

thankyou
robots


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## Rainmaker2000 (13 February 2009)

I sure doubt he can access super to pay a home loan............this is a terrible story but unfortunately just the beginning for many aussies as the devaluation of the stock market (over 50% now from top) flows through to the relative devaluation of people's labour and then personal assets like housing which is mainly a function of wages................

Here is one strategy that helps in some of these cases........depending on the conditions of the loan, many fixed rate loans allow additional repayments (sometimes for fee) and the only condition of the fixed loan is that you retain a fixed loan (which could be 2$)

So thus, your friend in this instance could arrange a temporary second mortgage at a lower rate to make additional repayments on the first one.......it's not lovely but can work as long as he didn't get a straight jacket mortgage in the first place.....

Your friend really needs to learn from this about investments, fundamentals and interest rate cycles.......those heavily into the stock market have learnt a lot in the last year......the key is we are still alive and still mixing it up.......your friend made some big mistakes here...........


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## nunthewiser (13 February 2009)

OFF TOPIC . apologies.........

dear rainmaker are you the same rainmaker/rainman? from commsec many years ago m8 ?


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## drsmith (13 February 2009)

Fab said:


> I have a friend who fixed 75% of his $500 000 mortage 1 year ago at 7.83%.He fixed it for 5 years with one of the big 4 banks. Now he is about to lose his job , the investment property he bought recently has lost over 25% of his value and the bank is asking him 34k to get out of the fixed part of his loan.
> Is there something he could do to get out of this bad situation ?
> 
> Cheers



The bank may well have financed the loan on similar terms before adding it's own margin so the $34k may largely reflect the bank's own break costs. It's the same as the value of a longer term bond. When interest rates fall the capital value of the bond rises.

Without the prospect of an income stream to service the debt the only option is to sell as Prawn has suggested.


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## Rainmaker2000 (13 February 2009)

hehe, not the same dude.....how I would love to have been heavily in the stocks right through the tech. reck.........would have learnt a lot.......and I doubt I would have made the mistakes many made..........I would have picked one of my favourites, Fantastic furniture on a float for 40 cents as well......


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## Glen48 (13 February 2009)

I say sell and buy back after the crash.


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## BigAl (14 February 2009)

Breaking a Fixed Rate Loan....

Let me put it to you another away.

What if rates skyrocketed up?  And the bank approached you and said, "We miscalculated...  we're in hard times... profits are down... we respectfully request the fixed term be broken".

What would be your response to this?

"A contract is a contract... up yours... you don't have a leg to stand on... suck it up".

So in the reverse, whats the banks response going to be?


Your mate gambled, and lost.  If rates had gone the other way, he'd be laughing and the rest of us would be sucking humble pie.  That's life.


And in no way shape or form do I work or know anyone in the finance industry.


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