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Economic Break Costs

This section provides a general overview of how early break costs, known as Economic Break Costs, are calculated and why they are charged by The Mutual. Please note that this information does not replace or form part of a member’s loan contract with The Mutual.

What is an Economic Break Cost?

An Economic Cost is the loss on a fixed term The Mutual experiences due to movements in the cost of funds.

This may occur, if before the end of the fixed rate term of your loan:

  • The loan is fully repaid.
  • A partial prepayment is made to the loan.
  • The loan changes from fixed to variable or to another fixed term.
  • The total outstanding loan amount is payable because you are in default and The Mutual is required to end the fixed rate contract early.

These events, which typically occur due to actions of our members, can potentially trigger a significant change in the original fixed term of the loan, and in turn, result in a sizeable loss to The Mutual.

Why does The Mutual charge an Economic Break Cost?

Firstly, to understand why an Economic Cost is charged, you need to understand what happens when The Mutual lends you money to fund your loan.

In order to lend our members money at a fixed rate for a fixed period, The Mutual typically borrows funds from someone else for the same period, such as other banks, small businesses or personal depositors. The interest rate that The Mutual is charged to fund your loan is known as the ‘cost of funds rate’.

Just as our members have an obligation to repay their loan, we too have an obligation to repay those who lent us the funds for your loan or to continue to pay the fixed interest on this borrowing.

If you repay the loan before the end of its fixed rate term, we need to calculate the Economic Cost (if any) of breaking our own loan arrangements or continued use of these funds in another loan. The Mutual looks to recover the economic break cost associated with the initial fixed loan from the member in some circumstances.

When is an Economic Break Cost charged?

An Economic Break Cost may be charged when the current cost of funds is lower than the original cost of funds, which results in a loss to The Mutual when you repay or prepay the loan before the end of the fixed rate term.

An Economic Break Cost will NOT be charged on a personal loan.

How is the Economic Break Cost calculated?

The Economic Break Cost is based on a number of factors:

  • Amount of the loan being repaid.
  • Remaining fixed rate period.
  • Contracted loan repayments.
  • Cost of funds at the start of the fixed rate term of your loan (the ‘original cost of funds’).
  • Cost of funds at the time you repay the loan (the ‘current cost of funds’) adjusted for the remaining fixed rate term of the loan.

How do I get an Economic Break Cost quotation?

If you are considering prepaying all or part of your loan during a fixed rate period, simply contact The Mutual for an estimate of the Economic Break Cost.

Please note: A quote will be valid for a period of 7 days only.


If you have any questions, please contact us