BOI Mortgage Interest rate increase from 3.4% to 4.75% - Can they do this?

E

Engaged2be

Guest
I received a Mortgage Loan Offer Letter from BOI on the 1st of March 2011.
The terms of the offer were:
Amount of credit advanced: €197,800
Period of agreement 35 years
Fixed at 3.4% for 2 years, monthly repayments of €804.98
Variable at 3.35% for the remaining 33 years.

I put a deposit on a house shortly afterwards, the offer was accepted and despite several delay tactics by the bank (don't get me started..) towards the end of April they finally issued the mortgage cheque. Yay!

A week later I found a letter from the bank that had been buried under a pile of admin, it was dated the 21st of April. This letter outlined a rate change notification.

"We refer to your Letter of Offer dated 1st March 2011 which provides for a fixed interest rate of 3.4% for the first 24 months of the term of the loan.... This rate is no longer available and if you wish to proceed with this loan, the fixed rate that now applies is 4.75% for the first 24 months of the term of the loan"

This new rate does not correspond to any mortgage rate for a FTB, existing customer on their website:

2 Year Fixed rolling to Variable VRP15 all LTVs - 3.8%

Can the bank make up a new rate so close to the closing date of the sale, after weeks of delaying issuing the cheque?

I now have to pay €964.63 a month for 2 years which is almost €3000 extra.

I met with the bank a few weeks ago, they couldn't explain the rate change and wouldn't accept my argument that it didn't match the rates advertised online. Basically, it was my tough luck. Had I been offered this 4.75% rate from the start I would naturally have chosen the variable rate of 3.35%. If I wanted to change now it would cost me €1,400.

I would welcome any advice on this matter. Thanks.
 
Last edited by a moderator:
It sounds like Bank of Ireland did notify you about the new rate before you drew down your loan and you didn't read the letter. If so you did have an opportunity to switch to the variable rate before cheque issue.

That said, you might have grounds for a valid complaint if the rate is different to what Bank of Ireland were advertising at the time. Get some hard evidence that the two year rate that Bank of Ireland were offering on 21st April 2011 was less than 4.75% and make a written complaint to Bank of Ireland.
 
Hi Marksa,
Can you clarify what is the difference between APR and a fixed interest rate.
If the advertised APR is 3.8% where does the additional 0.95% come from?

Thanks
 
Engaged2be said:
Hi Marksa,
Can you clarify what is the difference between APR and a fixed interest rate.
If the advertised APR is 3.8% where does the additional 0.95% come from?

Thanks
Click to expand...

APR is supposed to be the real annualised interest rate. Its purpose was to make it easy to compare the rates from different providers.

As far as I can see, however, it gets quoted completely out of context for fixed rates over a set term.

The regulator somehow lets the banks advertise an APR based on a 20 year period. So if you are fixed for 2 years and the fixed rate is higher than the variable rate, they fudge the APR down by quoting you an APR that is an average of 2 years of the higher fixed rate and 18 years of the lower variable rate.

It's very misleading in a situation that's already complex enough.
 
DerKaiser said:
The regulator somehow lets the banks advertise an APR based on a 20 year period. So if you are fixed for 2 years and the fixed rate is higher than the variable rate, they fudge the APR down by quoting you an APR that is an average of 2 years of the higher fixed rate and 18 years of the lower variable rate.
Click to expand...

the APR is the only real benchmark, as the case outlined by DerKaiser would actually be the other way around for e.g. PTSB, where the fixed rate is low at 3.70% (I think from recollection) and then the variable is much higher for the remaining period - around 6%.

The only alternative is for someone to say that banks have to show the APR for the fixed period and the variable period separately. While that might suit people like myself who are very aux fait with financial instruments, APR, present values etc etc, the average Joe would just see it as just another thing to get confused about.

The other comment I would make is that APR on a fixed then variable loan such as is common in Ireland is more relevant than ever in that in the past, people would take out e.g. 5 year fixed and then at the end switch provider to whoever had the best rate at maturity. Now borrowers are largely speaking stuck with their existing lender and the overall term APR is more relevant.
 
I think all the average Joe really wants to know is what deal is best rather than what is the lifetime APR.

As you point out, it can be quite misleading when comparing the fixed rates of two banks who have very different standard variable rates.
 
DerKaiser said:
It's very misleading in a situation that's already complex enough.
Click to expand...

Agreed.
In the case of a fixed rate loan, the APR is calculated on the assumptions that

a) the fixed rate will apply for the fix period
b) the lender’s current variable rate will then apply after that for the rest of the loan term (20 years)
eg For a 10 year fixed rate mortgage, it is assumed that the variable rate that will you will revert to at the end of the 10 years will be the same as today's variable rateand that it will continue at that rate for the next 10 years.

Therefore a lender with a low variable rate but high fixed rates will in fact have a lower APR for a more expensive fixed rate mortgage. Confused?
 
So are there alternatives? Just showing the APR for the fixed period may be an answer, but then some average Joe's will be suckered in by discounted 1 year fixed rates (hmm sounds familiar - wasn't that a favourite of BoI or AIB?) before reverting to some higher variable rate.
 
Think it depends on how long the fixed rate is for. We're in the process of signing up for the PTSB 5 yr fixed at 3.7%. BOI's rate was 4.6% (I think) but their APR was lower - someone here kindly explained it for me. But given that the rate is for 5 years I'm not concerned about the APR as a lot can happen in 5 years and I think the current variable rates are no reflection on what the rates will be in 5 yrs time and/or whether switching will be possible at that time. For a 1 yr fixed it has much more relevance, less so for 5 or 10 yrs.
 
DerKaiser said:
The regulator somehow lets the banks advertise an APR based on a 20 year period. .
Click to expand...

Very interesting, would that be because traditionally mortgages were generally never for longer than 20 years?

OP the bank can change the offer letter prior to drawdown, it will be written in the original offer to you. Also at drawdown did you not notice that the repayments were different to those originally quoted?
 
You must log in or register to reply here.
Back
Top