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Topic # 89519 4-Sep-2011 11:07 Send private message

Just after some advice please if anyone has any: we recently took out a mortgage with a lender which required us to have a "full banking relationship" with them, which seems to me to be a standard condition of a mortgage, so we switched everything to them but it just isn't working out for us - they're just too 'no frills', services aren't the greatest, and its caused us difficulty not being able to speak to people outside of standard business hours or on weekends.

We were thinking of either:

1. Switching our transactional banking and just paying the mortgage to them, but not sure if we can get in trouble for this because when we signed the agreement we agreed to the "full baking relationship" with them, or;
2. The full mortgage is fixed for 12 months at 5.95%, would we be up for thousands in break fees if we looked at switching everything, considering rates haven't really moved yet since we took out the mortgage?

Thanks in advance for any help!




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  Reply # 516379 4-Sep-2011 11:10 Send private message

Put up with it for 12 months and then bail






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  Reply # 516391 4-Sep-2011 11:35 Send private message

That's an eternity for us at the moment!




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  Reply # 516419 4-Sep-2011 12:47 Send private message

Then why not just turn your option 1 around.

You pay goes into the account you have with them, which meets your obligations. Then a percentage is transferred to another account at your Bank of choice, that allows you to get the services you require.

In a year you then have the option to to go where you wish.

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  Reply # 516421 4-Sep-2011 12:51 Send private message

I would suggest that you discuss it with the bank if they cannot meet your genuine banking needs.

Usually, a "full banking arrangement" for personal accounts is fulfilled by having ones salary automatically deposited in an account at that bank. It should be explained somewhere in the documentation you have or on their web site among terms and conditions. There is likely nothing to stop you doing all your banking elsewhere and transfer to that bank your salary after it gets depositied to the account in the bank who holds the mortgage (EDIT: along the same lines as foxinsox Smile has posted while I was still typing).

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  Reply # 516477 4-Sep-2011 15:52 Send private message

corksta: Just after some advice please if anyone has any: we recently took out a mortgage with a lender which required us to have a "full banking relationship" with them, which seems to me to be a standard condition of a mortgage, so we switched everything to them but it just isn't working out for us - they're just too 'no frills', services aren't the greatest, and its caused us difficulty not being able to speak to people outside of standard business hours or on weekends.

We were thinking of either:

1. Switching our transactional banking and just paying the mortgage to them, but not sure if we can get in trouble for this because when we signed the agreement we agreed to the "full baking relationship" with them, or;
2. The full mortgage is fixed for 12 months at 5.95%, would we be up for thousands in break fees if we looked at switching everything, considering rates haven't really moved yet since we took out the mortgage?

Thanks in advance for any help!


Must depend on where you live. Most banks seem to have branches open on the weekends in the malls. In Glenfield Mall (for example) you can drop into ANZ, Westpac, ASB or Kiwibank on the weekend or on the late-night Thursdays and Fridays. 

 




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  Reply # 516501 4-Sep-2011 17:06 Send private message

You should not be up for any 'break fees' - they only arise if interest rates have decreased since the date you fixed your rate. Rates have been very static for a long time.

In principle (and principal, hehe) there is nothing to stop you keeping your mortgage running with bank A and moving your transactional banking to bank B.



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  Reply # 516514 4-Sep-2011 17:21 Send private message

eracode: You should not be up for any 'break fees' - they only arise if interest rates have decreased since the date you fixed your rate. Rates have been very static for a long time.

In principle (and principal, hehe) there is nothing to stop you keeping your mortgage running with bank A and moving your transactional banking to bank B.


Thanks, this is what I was most keen to know. I'm happy to keep the mortgage with them for 12 months to avoid the hassle of switching it to another bank (actually, is it even a hassle?), but it's our first mortgage and this is all new territory for us so was just concerned that the agreement we signed to fully bank with them is legally binding, and if by moving to another bank they could take some form of legal action against us.




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  Reply # 516520 4-Sep-2011 17:37 Send private message

corksta:
eracode: You should not be up for any 'break fees' - they only arise if interest rates have decreased since the date you fixed your rate. Rates have been very static for a long time.

In principle (and principal, hehe) there is nothing to stop you keeping your mortgage running with bank A and moving your transactional banking to bank B.


Thanks, this is what I was most keen to know. I'm happy to keep the mortgage with them for 12 months to avoid the hassle of switching it to another bank (actually, is it even a hassle?), but it's our first mortgage and this is all new territory for us so was just concerned that the agreement we signed to fully bank with them is legally binding, and if by moving to another bank they could take some form of legal action against us.


I very much doubt the legal action thing in respect of 'full banking'. However if they gave you a discounted interest rate - i.e lower than their published rates, they may be able to change your rate to the published rate, but then probably only at the end of the current fixed rate period. Overall I think you have nothing to worry about if you change. The full banking thing is likely to be more of a moral obligation than a legal one. Most likely the only documents you signed with the bank are a mortgage document and a loan agreement. The loan agreement is a contract that binds both you and them and they will be bound to the rate agreed in the loan document. Unless the loan doc refers to the full banking thing (which is very unlikely) you are OK to make changes either as you plan or as suggested by others above.

Having said that, I would do what was suggested above - talk to your current bank about your concerns before making the change and give them the chance to put things right.

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  Reply # 516523 4-Sep-2011 17:45 Send private message

As above, just transfer the bulk of the cash back out each week.
- You should not be paying fees for transfers if you have a mortgage.

Ask about the break fee, it's as easy as that.
They can usually only give you an idication for a very short time as it all changes daily/weekly.
You'd need to be clear what exactly you wanted to do, move the whole amount or just a partial with break fees on either all of it or some of it.

By fixing you're saying you will pay the interest on this loan for a period of time.
Breaking just means you're moving somewhere else, but you still owe them the amount you said you'd pay them over the fixed period.         

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  Reply # 516527 4-Sep-2011 17:55 Send private message

Before you get too excited keep in mind Early Repayment Adjustments aka "Break fees" are generally not just dependant as was said on whether you go to a lower interest rate or not - they are also dependant on if you make a lump sum payment or repay the loan off early (which includes taking the mortgage to another creditor).

All depending on the particular contract but usually includes the change in the retail swap rate, the magnitutde of the adjustment to the mortgage and the remaining term. They are always entitled to recover costs and that includes for the swap contracts they have entered into.

Your bank should have a full explanation on their web site of this and the formula used.

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  Reply # 516528 4-Sep-2011 17:58 Send private message

Jaxson: ... but you still owe them the amount you said you'd pay them over the fixed period.         



That might be a bit misleading. Break fees really only arise if interest rates have decreased since the borrower agreed to a fixed rate.

If you repay early, the break fee is calculated on the interest rate differential between the contracted rate and new lower rate for that period, if rates have gone down, for the balance of the fixed rate period. The borrower is not committed to pay all of the interest for the balance of the fixed period beyond the early repayment date.

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  Reply # 516532 4-Sep-2011 18:09 Send private message

There will be a minimum payment to break your mortgage, probably about $250 and then the break fee is essentially the difference between what they could make from you and what they can make now relending the money,  so if you borrowed at 5.95 and they can now lend it at 6.5% you would probably only pay the admin fee.  However if they can only relend it at 5.5% you would be up for costs, e.g. if you loan was 200K  and you had 9 mths to run you would be paying somewhere around $700  (thats based on a pretty simple calculation so don't rely on that) 

The other thing to consider is your equity.  Most, if not all, banks charge low equity premiums (LEP) for borrowing over 80% of the house value,  so if that 200K is 95% of the house value you could be up for a significant LEP everytime you change banks.  You can generally add that to your mortgage but you pay for that for years due to the joys on compounding interest.


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  Reply # 516533 4-Sep-2011 18:21 Send private message

eracode:
Jaxson: ... but you still owe them the amount you said you'd pay them over the fixed period.         



That might be a bit misleading. Break fees really only arise if interest rates have decreased since the borrower agreed to a fixed rate.



Good point, sorry it was a bit rushed.


Main points are really that you did agree to take the loan for a fixed time and rate.  If rates have gone up then they'll be happy to let you out, but if rates have gone down (ie you're just going for a better rate somewhere) then you'll be looking at paying the difference between what you said you'd pay and what you would pay at the new lower rate.

As mentioned above by someone, before you head off down that track, I'd just talk to them, to see if you can improve things and save the major hassle of a re finance somewhere else.        



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  Reply # 516604 4-Sep-2011 22:31 Send private message

Thanks guys for all the tips. It's not so much that the lender (they're not a bank) is able to improve their service, it's just that we've discovered their service doesn't suit our lifestyle. They're only available business days, and that has already caused us problems (worst case was wife stuck overseas with cards that stopped working and no way to get hold of the lender because it was 6pm).

It's partly our fault for not really thinking about these things prior to signing up, but good to know what our options are anyway.

@Jaxson, mortgage is about 55% of the house value so plenty of equity available should we decide to change at some point.




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  Reply # 516607 4-Sep-2011 22:40 Send private message

i broke a fixed rate and re-signed on a lower one a couple of years back at the ASB.  It cost me a fee (the ERA/Early Repayment Fee) - but i calculated that it was worth it to get out of a high fixed rate a year early.  It certainly worked out well for me, the two 6 month rates i subsequently got (low 5%'s) were nearly 4% lower than the rate i was to be stuck with for another year (high 8%'s).

At the same time a colleague who had a similar mortgage to me also considered breaking his fixed term.  As it turned out his bank (w?) used a different ERA formula and it was going to cost him nearly 3 times as much as it cost me to break the term.  For him it didnt make sense to break it.  He also switched banks at the end of his mortgage.


Dont assume that a break fee is straight forward.  They really do differ between banks, so its worth asking them how it is calculated *before* signing for that new mortgage - especially if there is likely to be some volatility in the rate market.  




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