Far from relieving mortgage stress, plummeting interest rates are presenting people on fixed home loans with an awful dilemma.
If they break their term with their bank, they'll be slugged with an $18,000 fee on an average mortgage.
Major banks dropped their variable rates this month to 6.74 per cent after the Reserve Bank's latest reduction, which took the cash rate to 4.25 per cent, its lowest level since 2002.
People with a $250,000 loan with a variable rate saved $160.98 a month as a result of the latest cut.
Care Financial Counselling Service, ACT, is starting to field calls on the issue and expects many more as interest rates continue to fall.
Acting director Carmel Franklin said the fees seemed enormous.
''We are trying to collect more information. For individuals it is a very difficult decision. If they cannot negotiate a better fee with their bank they are between a rock and a hard place.''
Financial advisory firm Cannex's senior analyst Harry Senlitonga said the fees were significant.
For the average $250,000 mortgage, fixed at 9 per cent six months ago for a three-year term, the break fee would be $18,000.
Fees were calculated on the loan amount, the time left to run on the fixed rate term and the difference between the fixed and current rates.
''If you think rates are going to drop 1 per cent a year for the next 212 years, we find that would be a break-even scenario,'' Mr Senlitonga said.
''If you think interest rates are going to drop more than 1 per cent a year, it is worth considering. If they are going to drop less than 1 per cent every year, for the next 2-and-a-half years, paying $18,000 is an extra cost for you.''
Housing Industry Association chief economist Harley Dale said people who fixed loans in the past two years made up 18.2 per cent of the mortgage market.
''As you would expect there has been a dramatic tapering off in the last six or nine months, but in 2006 and 2007, into the early months of this year a lot of people were opting for a fixed rate.''
A single-income family in Stirling in the ACT wanting to switch from a loan fixed 18 months ago at 6.84 per cent until 2010 on a $339,000 mortgage, and a second loan of $42,000 at 7.2 per cent, was quoted a $13,000 break fee by the Commonwealth Bank.
A bank spokesman said the early repayment adjustment enabled the bank to recoup losses.
''We don't make money out of this. We simply recoup our loss, nothing more,'' he said.
''The break cost is the compensation we pay to our wholesale funders for the early closing off of our fixed interest rate swap with them.''
The Banking and Financial Services Ombudsman had suggested the calculation to the bank several years ago.
''As with any change in the interest rate cycle, we have experienced an increase in customers seeking break figures on their fixed rate home loan contract as more customers begin to clearly opt for variable interest rate home loans.''
He said the Commonwealth Bank and any other major lender could not speculate on what break fees would be in future if rates continued to fall because they could not predict the extent of those drops nor impact on borrowing costs.
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