Why can’t banks waive Home Loan Break Costs?

Not an unreasonable request, surely! Waiving break costs on a home loan would make a lot of borrowers a lot happier but it’s about as unlikely as the wind deserting Wellington.

The reason is that at the time you fixed your loan, the lender also locked in the same amount when sourcing that money on the wholesale market. Similar to your motives, they did this to protect themselves from rising interest rates.

If you break that loan now in a low interest rate environment, the lender loses out and cannot re-lend that money to recover its original borrowing costs. Lenders are therefore simply recouping money lost through early termination of the fixed term contract.

The thing to remember is that consumers fix their loans to give them security and a hedge against rate rises. Automatically waiving break costs and losing out on a contracted arrangement is not a decision any business would take.

By continuing with a fixed rate home loan, the consumer still has the assurance that they will not be charged higher rates. Expecting a lender to waive break costs is a bit like paying your car insurance, then asking for a refund further down the track because you did not have an accident that year.

This option to protect yourself against rate rises, car accidents or whatever comes at a cost.

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