Why am I being charged an early repayment adjustment (ERA)?
Subject to when your loan was documented, an early repayment adjustment (ERA) is charged when:
- the fixed interest rate (on the loan being repaid or switched to a different interest rate) is higher than the current interest rate ASB can re-lend the money for the remainder of the fixed interest rate period OR
- there is a difference between the wholesale interest rate at the start of your fixed interest rate period and the wholesale interest rate at the date of your early repayment (on the loan being repaid or switched to a different interest rate) which incurs a loss for the bank.
ERAs are charged because when you choose to fix your loan’s interest rate, ASB also enters into loans from other sources (i.e. depositors, wholesale money markets, other banks and through the issuing of bonds) for the same fixed rate period to fund your loan. This is how we manage the risk of interest rate fluctuations. When you decide to switch your interest rate or repay your loan early, either partially or in full, ASB is still required to honour its commitment to the funding it has borrowed for the remainder of its fixed interest rate period and may incur a loss. ASB will charge you an ERA to help recover this loss.
For more details follow this guide.
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