Fixed Interest Rate Loan
At A Glance
- How a fixed interest rate loan works
- A fixed rate loan is best suited to
- Features and benefits of Westpac's fixed rate loan
Making Extra Payments
Holding A Fixed Interest Rate
Breaking A Westpac Fixed Rate Loan
- What this really means
- Some common situations that cause a fixed rate loan to be broken
- How the break cost is calculated
- The rule of thumb
- Get a quote from Westpac then do the sums
Please note: If you find any of this confusing, don't worry we can explain it all to you in plain English and in the context of your situation and your financial goals.
At A Glance
With a Westpac fixed rate home loan you know how much your regular repayments are, giving you the security to budget with confidence. Westpac also offers some flexibility for increased loan repayments, free of charge.
How a fixed interest rate loan works
A fixed interest rate is guaranteed not to change for a specified period. If market conditions change and interest rates move up or down, your interest rate and the amount of your repayments will stay the same during the fixed interest rate term, even if rates decrease. This means you are shielded from any rise in interest rates and have the assurance of knowing how much you will pay for the fixed interest rate term.
A fixed rate loan is best suited to
- Customers who prefer a repayment amount that does not fluctuate.
- Customers who need a disciplined repayment structure.
- Customers who are unlikely to want to make large lump sum payments within the fixed rate term.
Features and benefits of Westpac's fixed rate loan
- Maximum term: 30 years.
- Repayment frequency: fortnightly or monthly.
- Extra repayments: you can pay up to 20% more than your minimum regular payment free of charge. Lump sum payments incur an administration fee and may incur a break fee.
- Fixed interest rate hold period is 60 days for both new and existing lending.
- Loan repayment holidays.
- Loan top-ups may be available.
- Interest only repayments from 5 years and up to 30 years may be available, depending upon your LVR, among other things.
Making Extra Payments
You can repay your Westpac fixed rate loan faster, either by increasing repayment installments, or by making lump sum repayments.
Making lump sum repayments will generally mean that you incur some costs, but incremental increases can be done without charge - subject to some conditions.
Don't worry if the criteria below confusing, we will explain this in the context of your situation and take care of this for you.
You can increase your repayments
At any time during a fixed interest rate term, you can increase your payments by 20% of Westpac's calculated minimum loan payment (we can advise you of this figure if you are not already paying this amount).
You can also reduce your repayments back to Westpac's calculated minimum payment if you want to.
Prior to your fixed rate loan being drawn down, you can request your repayments increase to any level above 20% of Westpac's calculated minimum. However, there are some conditions as follows...
- You cannot go any higher than this level at any point in the fixed rate term.
- If this level of payment becomes difficult, the loan must be put back to the minimum payment and can then be increased up to 20% of that minimum payment. It cannot go back to the higher level nor can it be increased above the "above 20% minimum". Also you cannot drop to a repayment level other than to the minimum or to the minimum plus 20%.
Your loan documents will not reflect the higher (voluntary) repayment amount. They will record the minimum payment amount, so as not to alter the loan term.
There is no charge to increase your repayments as described.
You can repay lump sums
You can make lump sum payments on your Westpac fixed interest rate loan.
Fees and costs for lump sum payments;
- each lump sum payment attracts an administration fee of $300, and
- you may incur Westpac's economic cost recovery (break cost). To work out whether a break cost applies, Westpac use a formula to calculate whether they have incurred a loss as a result of the prepayment. This formula is complex, but the relationship can be approximately expressed as Prepayment Cost = Loan amount prepaid * (Interest Rate Differential) * Remaining Term.
Repaying a fixed rate loan in full
A lump sum repayment can be the entire loan.
This may occur if the loan is being repaid from the sale of the property or by another lender refinancing the loan - or you may have received a large sum of cash.
Generally, this will attract the $300 administration fee, and, depending upon prevailing interest rates, Westpac's break costs may apply.
Holding A Fixed Interest Rate
Westpac's fixed interest rates can be locked-in for a period of up to 60 days for both new and existing lending.
Why lock in a fixed interest rate?
When it is appropriate, we do this so you get the choice of the best interest rates available.
In a rising interest rate environment, you may prefer to lock in a current fixed interest rate rather than take the risk that the prevailing fixed rates will still be available when you want to draw down your loan.
Locking a fixed interest rate can give you peace of mind, but we will explain the pros and cons of Westpac's lock-rate mechanism at the time, and in the context of your circumstances.
What this means
If you choose to hold a fixed interest rate, this rate will be applied to the loan regardless of any interest rate movements (up or down) for up to 60 days between when Westpac's lock-rate contract is signed and the loan is drawn upon.
How it is done
Mortgage Warehouse will discuss, with you, whether or not you should lock in a fixed interest rate. In doing so, we will explain the pro and cons of locking, or not locking, based on the prevailing interest rate environment, your circumstances, and your preferences.
If you decide to lock in a fixed interest rate for some, or all, of your lending we will then assist you to finalise your preferred lending structure. Your lending structure must be finalised prior to locking an interest rate, as these details cannot be changed once the interest rate has been locked.
The lock-rate mechanism is available for new and existing Westpac customers and we will take care of the paperwork for you.
Westpac's 60 day lock-rate policy
Westpac will quote a range of fixed interest rates which are valid for 3 days.
- If interest rates fall during this initial 3 day period, the lower rates apply.
- If interest rates increase during this initial 3 day period, the lower (quoted) interest rates apply.
Once accepted, a fixed interest rate can be held for up to 60 days.
If you need to change the details, or if the loan is not drawn down for any reason, a break fee (currently $250) will apply.
Breaking A Westpac Fixed Rate Loan
You can break your Weatpac fixed rate loan. However, depending on the interest rate differential related to Westpac's funding of your loan, you may need to reimburse Westpac for costs incurred in breaking your loan contract.
What this really means
Breaking a fixed interest rate loan really means that the loan is repaid within its fixed interest rate term.
We have explained Westpac's repayment tolerance which allows you to repay more than your contracted loan repayments during the fixed interest rate term. However, if you want to repay more than the tolerance you will be breaking the terms of the contract with Westpac and this may trigger an economic cost recovery by the bank.
Some common situations that cause a fixed rate loan to be broken
- You sell your house and not able to transfer the loan to another property. This may happen if you decide not to purchase another home.
- You refinance your loan with another lender.
- You chose to repay a Westpac fixed rate loan with another lower cost Westpac loan.
How the break cost is calculated
The calculation is complex. The factors that influence the calculation are;
- the loan size,
- the fixed interest rate,
- the unexpired term of the contact, and
- the underlying cost of funding the loan.
The rule of thumb
- If prevailing interest rates have fallen below your fixed interest rate then you will probably pay a break fee. You may also be charged an administration fee.
- If prevailing interest rates have risen above your fixed interest rate then you may only be charged an administration fee.
Get a quote from Westpac then do the sums
You can either get us to request a quote from Westpac, or you can get Westpac to give you the figure directly.
When you know how much it will cost to break your fixed rate loan you can do a quick calculation using our break cost calculator. This will tell you how many months it will take you to recover a break cost by paying a lower interest rate.