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Pepper Money waives break costs for 2-year fixed-rate loans

The non-bank lender has launched a fixed-rate mortgage that enables borrowers to break their fixed term without penalty should interest rates drop.

Pepper Money has today (17 April) launched a two-year home loan product that enables owner-occupier and investor borrowers to fix their interest rate with no break costs.

The non-bank lender said the product — which is initially being offered for prime, near prime, and specialist fixed-term loans lodged between 17 April and 12 May 2023 and formally approved by 19 May — is offered at parity with the corresponding variable interest rate.

Rates for the product start from 5.59 per cent per annum (comparison rate 5.77 per cent p.a., based on a secured loan of $150,000 and a term of 25 years). 

It has reportedly been designed to “provide customers with peace of mind when it comes to their home loan as they will be able to lock in a competitive interest rate for two years without having to worry about the additional break costs that most traditional lenders impose”. 

As such, the product aims to give customers “repayment certainty while rates are rising” and offers them the option of a variable interest rate loan, should rates drop. 

Pepper Money’s general manager, mortgages and commercial, Barry Saoud, said the product offer was developed in response to borrower sentiment. 

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“Our research shows borrowers want rate certainty to help with increasing living costs pressures and the potential for further cash rate increases when it comes to managing their home loan,” he said.

“And that’s why we’re thrilled to introduce this new offer which gives customers a competitive interest rate and certainty for two years that their rate won’t change,” flagging that borrowers could also make changes to their loan without incurring any significant additional costs.” 

Mr Saoud highlighted that borrowers had seen interest rates rise every month between May 2022 and April 2023 and that more than 800,000 fixed-rate loans (totalling around $350 billion) are expected to be rolling off their super-low fixed rates (and onto higher variable loans) in 2023.

While the Reserve Bank of Australia (RBA) decided to hold rates this month to evaluate the impact of its rate hiking cycle, it recently warned that “some further tightening of monetary policy may well be needed to return inflation to target within a reasonable time frame”.

As such, Mr Saoud said: “We know many Aussies are anxious about how they would cope and are looking for greater certainty given the potential for further rate rises on top of the 10 RBA cash rate increases already announced. 

“We’re offering Australians impacted by real life cost of living pressures repayment certainty — giving them one less thing to worry about.”

Representatives from the third-party distribution space have welcomed the move, with Michael Goerner, head of Connective Home Loans, commenting: “Continual product and policy innovation which better places broker to deliver real solutions for their customers as market conditions change is one of the most valuable qualities in our partnership with Pepper Money, funding our ‘Solutions’ brand. They have made it easier for brokers to help their clients. 

“For all those clients rolling off fixed rates that are looking for next steps, this is a really good solution and with no break costs it is an absolute safe bet each way, rates go up and you are sheltered, rates go down and you are okay to jump off and ride the rate slide with no penalty.”

Similarly, Hayden Cush, national sales manager of AFG Home and Commercial Loans also welcomed the “innovative solution”, stating: “The Pepper Money team have consistently been a market leader with their product innovation, and ability to produce products that meet market demands in an ever-changing lending environment. 

“Given the aggressive nature of the RBA rate increases since May last year, a number of consumer household budgets are being stretched, and will continue to be stretched, with further rate increases still expected. 

“The new fixed-rate offering now available via our Options suite (funded by Pepper Money) comes at a time when consumers may be looking for some certainty in their outgoings.”

[Related: Fixed-rate borrowers ‘unlikely’ to be changing spending behaviour: RBA]

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