﻿ Break Cost Fee page top # Break Cost Fee

 The break fee is calculated by applying the difference between the fixed annual percentage rate & the break rate to any prepayment(s) for the balance of the fixed term where: the balance of the fixed term is in whole months excluding the month in which you make the prepayment the fixed APR is the annual percentage rate disclosed in the Schedule the break rate is the annual percentage rate fixed for the rate loans we offer at the time, or if we do not offer any, then the annual percentage rate we determine in good faith. The break fee is payable on the break day.

## Break Cost Fee (BCF)

A Break Cost Fee (“BCF”) may be payable if you repay your loan, or if you make an additional repayment, during any period in which your loan interest rate is fixed.

The BCF is based on the difference between the Fixed Rate, i.e. the interest rate for your fixed interest rate contract, and our Reinvestment Rate, which is the interest rate that we can reasonably expect to earn on any amount that is repaid early.

The BCF reflects the cost incurred by us if the Reinvestment Rate is less than the Fixed Rate at the date of repayment.

The minimum BCF is zero. We will not pay a refund for any advantage gained if the Reinvestment Rate exceeds the Fixed Rate.

### Repayments not subject to Break Cost Fee

We will waive the BCF if your total additional repayments during any year (starting from the anniversary of your fixed interest rate period) do not exceed 10% of your original loan balance.

If your additional repayments exceed 10% of your original loan balance in any year, the BCF will apply only to the repayments in excess of 10% of your original loan balance.

### Calculation of BCF

The BCF will be calculated using the following steps:

1. The proportion of your loan balance that is being repaid subject to BCF will be calculated as: Proportion = (Repayment – Tolerance)/ Balance.
2. The interest that would be lost to us if you fully repaid your current loan balance will be calculated as: Amount (1) = Balance x Years x (Fixed Rate – Reinvestment Rate).
3. An interest offset based on your expected future loan instalments will be calculated as: Amount (2) = Interest x N x (Fixed Rate – Reinvestment Rate) x Years /
4. Your BCF will be calculated as: Proportion x [Amount (1) – Amount (2)].

The BCF cannot be less then zero

## Definitions

Balance is your total loan balance outstanding after any regular scheduled repayments, but before your additional repayment.

Fixed Rate is the fixed interest rate (% pa) applicable to your loan contract.

Instalment is the regular loan instalment you have been paying each week, fortnight, or month, at the date of repayment.

N is the number of whole instalment periods (weeks, fortnights, or months depending on your instalment frequency) remaining in your fixed interest rate term, at the date of repayment.

Reinvestment Rate is the interest rate (% pa) that we can reasonably expect to earn on any amount that is repaid early. This rate will be determined as our interest rate at the date of repayment for a fixed interest rate loan with a term equal to Years, or the nearest term less than Years for which we offer fixed interest rate contracts. If there is no such fixed interest rate, then Reinvestment Rate will be taken as our standard variable interest rate at the date of repayment.

#### Example

If at the date of repayment, we offer fixed interest rate contracts for terms of one, two, or three years, then Reinvestment Rate will be based on the value of Years as follows:

Years (remaining in fixed interest rate period) Reinvestment Rate
Less than 1 year

Standard Variable Rate

1 year or more, but less then 2 years

1 year fixed interest rate

2 years or more, but less then 3 years

2 year fixed interest rate

3 years or more

3 year fixed interest rate

Repayment is the additional repayment that you are making, i.e. in addition to your regular loan repayment instalments.

Tolerance is the additional amount that you can repay without a BCF applying. Within any one year (starting from the anniversary of your fixed interest rate period) you can make additional repayments up to 10% of the original loan balance without BCF applying.

Years is the number of years remaining in your fixed interest rate term, at the date of repayment. Years is calculated as N/52 if you are making weekly repayments, N/26 for fortnightly repayments, or N/12 for monthly repayments.

## Example

The following example is provided to illustrate how a BCF is calculated using the above steps. Any BCF payable under your contract will depend on the loan details specific to the contract.

A member takes out a loan of \$200,000 with a fixed interest rate period of three years, & a fixed interest rate of 9.30% pa. The member‘s interest-only repayments are \$1,550 per month. After one year, when the loan balance outstanding is still \$200,000, the member makes an additional repayment of \$50,000. The member has made no previous additional repayments.

When the repayment is made, there are 24 months remaining on the fixed interest rate period, so N is 24 months and Years is 24/12=2.00. if, at the time of repayment, our 2-year fixed interest rate is 8.50% pa., then the Reinvestment Rate will be taken as 8.50% pa. The member’s BCF will be based on the difference between the Fixed Rate 9.30% pa and the Reinvestment Rate of 8.50% pa.

The BCF will be calculated as follows:

1. The proportion of the loan that is being repaid subject to BCF is calculated as: (Repayment – Tolerance ) / Balance

Where Repayment = \$50,000,  Tolerance = 10% of original loan balance, & Balance = \$200,000

= (\$50,000- \$20,000)/\$200,000 = 15.00%.

2. The interest that would be lost to us if the member fully repaid their current loan balance is calculated as:

Balance x Years x (Fixed Rate – Reinvestment Rate) = \$200,000 x 2.00 x (9.30% - 8.50%) = \$3,200.00

3. The interest offset based on the member’s expected future loan instalments is calculated as:

Instalment x N X (Fixed Rate - Reinvestment Rate) X years/2 = \$1,550 x 24 x (9.30% - 8.50%) x 2.00/2 = \$297.60

4. The member’s BCF if calculated as: Proportion (1) x [Amount (2) – Amount (3)] = 15.00% x [\$3,200.00 - \$297.60] =\$435.36