Calculating a mortgage or home loan break fee can be quite complicated, however with our easy to use tool we do all of the hard work for you. When it comes to home loans or mortgage break fees four key factors influence the end fee amount. These factors are a) what the remaining balance of the loan is, b) what the change in the wholesale interest rate has been since the loan was taken out, c) what the remaining term is in years and lastly if the bank or lender charges a set fee like an administration fee d). An example of this is if you have a loan with $500,000 remaining on the balance (a) that you took out at 5.00% that is due to be broken at the new wholesale rate of 4.00% (b) with 3 years remaining on the term (c) plus the administration fee (d). In this case it would be $500,000 * (5.00% - 4.00%) * 3 which ends up as $500,000 * 1.00% * 3 = $15,000. If the rate since the loan was taken out has increased there will likely be no rate related fee however the provider may charge a one-off administration fee. The wholesale rate that the lending establishment will use will be the wholesale hedge rate, which will most likely be from Bloomberg. This is the rate that they determine they can get fixed-rate funds from the wholesale money market on the prepayment day. This is usually made up of a fixed start, and a day rate. As a rule of thumb, this rate will be ~50 percentage points (or one-half percent) lower than the best-fixed rate offered by the bank.
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