Is it worth paying the exit fee on our fixed mortgage to refinance
and get a lower interest rate?
Q.
We have a fixed rate of 6.79% on our home loan that is to finish
in February 2011. We can only make an extra payment of $5000 per
year. If we are to exit out of our loan and refinance while the
interest rates are lower we would have an exit fee of about
$10,000. Would it be a wise move to refinance? We would like to
renovate the house and then refinance at the lower rate to be able
to lock in before they escalate again.
A.
If you do the calculations you will almost certainly discover
that any money you save by moving to a fixed rate will be wiped out
by the exit fees. Also, be aware that the bank will only give you
an approximate quote for the exit fees and this may be markedly
different from the fees charged on the day the mortgage is paid
out. If you have sufficient equity in your home you could talk to
the bank about a second loan for the renovations. This loan could
be on a variable rate if you felt that was appropriate.
Each week financial advisor Noel Whittaker answers your
questions.
