Advice needed on lump sum payment combined with switching to fixed rate

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rkck15

Registered User
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Hi Guys, a question that you may be able to help me out with. Appreciate any and all advice.

We have €90k left on our mortgage with EBS. We’re on a variable rate of 3.7% with them and as it stands the mortgage will mature in 2032.

Our house is worth approx €140k / €145k.

Just over 2 years ago we capitalised €8k worth of arrears which had built over a few years.

Since then we have had no further issues with payments.

We’re now in a position to make a lump sum payment on the mortgage of roughly €30k. Also it seems like now would be a good time to switch to a fixed rate for at least 2 or maybe 3 years.

EBS made us an offer last May to switch from a variable rate of 3.7% to a fixed rate of 3.65% for 3 years.

I guess in an ideal scenario it would be best to shop around in terms of switching but I’m conscious that with our previous arrears situation and the fact that we are both self-employed with relatively modest earnings we might not find too many providers willing to take on our mortgage.

Thanks in advance for the help. (This forum was great in giving advice previously when we had our difficulties with arrears!)
 
Hi there,
When EBS reduced their fixed rates in October they removed the LTV bands, so everyone could get the same rate. You could pay off a lump sum in the morning, and immediately fix for 3.15% for 1, 2, or 3 years.

Your previous arrears will show up on an ICB report, so not sure how other banks would look at it if you wanted to switch. Your balance is not huge so you wouldn't get much cash back from BoI for example if they did take you on.

If I were you, my only decision would be if I wanted to shorten the term before fixing, and stick with EBS.
 
RedOnion said:
Hi there,
When EBS reduced their fixed rates in October they removed the LTV bands, so everyone could get the same rate. You could pay off a lump sum in the morning, and immediately fix for 3.15% for 1, 2, or 3 years.

Your previous arrears will show up on an ICB report, so not sure how other banks would look at it if you wanted to switch. Your balance is not huge so you wouldn't get much cash back from BoI for example if they did take you on.

If I were you, my only decision would be if I wanted to shorten the term before fixing, and stick with EBS.
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Thanks for the reply. Sounds like sticking with EBS is the best bet. We're pretty happy to keep paying the same monthly amount and use the lump sum to shorten the term. Does it matter if we decide to change to a fixed rate before paying the lump sum or pay the lump sum while we are still on the variable rate and then switch to a fixed rate after?
 
Hi, pay lump sum first if you can.
If you pay a lump sum off a fixed rate, then the bank can calculate if a break fee is chargeable.
Just with EBS make sure you explain how you want the lump sum treated. I think if you reduce the term, then you have amended the contract and can't automatically make it longer again if you need to.
 
RedOnion said:
Your previous arrears will show up on an ICB report, so not sure how other banks would look at it if you wanted to switch. Your balance is not huge so you wouldn't get much cash back from BoI for example if they did take you on.
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Agree the % cashback is not much benefit to you because your balance is so low. You would need to consider flat rate switching incentives.
You should check your ICB record to see if the arrears are still there. If they are, then you are probably stuck with EBS.

If not, you could consider a switch to KBC for example - reduce the balance by 30k and shorten the term to 10 years and go for their 10 year fixed rate at 2.95%. This would mean you have a guaranteed fixed rate for the remainder of your mortgage term. This may prove very beneficial to someone in your situation towards the end of their mortgage. You can also overpay by 10% as well, so shorten the term further if you desire.

Something else to keep in mind - most banks have a minimum mortgage level. I am not sure if its 40k or 60k, but something to keep in mind. Once it goes below this, switching would no longer be an option to you. You will need to check with each bank.

@RedOnion have you any thoughts on people going into 10 year fixed term agreements towards the end of their mortgages to give them effectively a guaranteed fixed term for the remainder of the mortgage? To me it seems like a good idea as it provides full certainty with minimal downside - small reductions in rates would not make material difference in repayments. Maybe I am biased as I like the european models of lifetime fixed mortgages, albeit at lower rates than us currently :)
 
RedOnion said:
Hi, pay lump sum first if you can.
If you pay a lump sum off a fixed rate, then the bank can calculate if a break fee is chargeable.
Just with EBS make sure you explain how you want the lump sum treated. I think if you reduce the term, then you have amended the contract and can't automatically make it longer again if you need to.
Click to expand...

Thanks again, all makes sense.

One further thing if I ask the EBS to ensure the lump sum is paid off the capital then do I have to make a decision regarding reducing the term or otherwise? For example, after the lump sum is paid can I not just keep paying the amount I currently pay on a monthly basis which ultimately results in the mortgage being paid off faster but would also offer some flexibility in the event that I had to revert to a reduced payment at some future point due to financial circumstances?
 
rkck15 said:
do I have to make a decision regarding reducing the term or otherwise
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Yes. Once you pay the lump sum, you need to ask them to either:
1. Keep monthly repayment amount the same, and shorten the term, or
2. Keep the term the same, and reduce the monthly repayment amount.

Just make sure you are comfortable with what you want them to do. I am not an EBS customer, but I have heard of them explaining it using different terminology each time.

Making a quick calculation without the exact figures, you'll be taking about 5 years off the term of your mortgage, so it'll be repaid sometime in 2027.
 
rkck15 said:
or example, after the lump sum is paid can I not just keep paying the amount I currently pay on a monthly basis which ultimately results in the mortgage being paid off faster but would also offer some flexibility in the event that I had to revert to a reduced payment at some future point due to financial circumstances?
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Caveat here that you remain on variable.
If you go fixed at some point to avail of a cheaper interest rate, you will either be not allowed to overpay without a penalty or restricted in what you can overpay. This is normally 10% (BoI & Ulster). I am not sure about EBS
Other option is to split the mortgage and leave a portion variable to allow you to overpay it !
 
gnf_ireland said:
@RedOnion have you any thoughts on people going into 10 year fixed term agreements towards the end of their mortgages to give them effectively a guaranteed fixed term for the remainder of the mortgage? To me it seems like a good idea as it provides full certainty with minimal downside - small reductions in rates would not make material difference in repayments. Maybe I am biased as I like the european models of lifetime fixed mortgages, albeit at lower rates than us currently :)
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I hadn't actually thought about that before, but it does make sense. Particularly those who are planning their finances for maximising pension contributions before retirement etc, having certainty over mortgage repayments allows that kind of planning. It's a good point. Regardless - in the context of what else is available I do think the 10 year rate from KBC represents good value for those who can avail of it.

I'm a little biased in the other direction as I hate being in debt so wanted the flexibility to repay my mortgage as quickly as possible.
 
RedOnion said:
I'm a little biased in the other direction as I hate being in debt so wanted the flexibility to repay my mortgage as quickly as possible.
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Absolutely, but some banks are not competitive on variable interest rates so fixing with limited overpayment is the only option - and maybe consider shortening the term.
 
Ah, apologies @gnf_ireland
In the context of our conversation, I agree that 10 year fixed rate is a fantastic idea for financial planning. I'm also one of the biggest recommenders of fixed rates.

My comment was in relation to my own personal situation where I didn't consider mortgage planning alongside retirement planning, rather than in the context of fixed rates. I'll hopefully have my mortgage fully repaid this summer.
 
If it was me I would write to the EBS mortgage department asking about whether they would be willing to match the KBC 10 year rate. At worst it might perk them up a bit to try and keep you.
 
Thanks for all the advice. Will the EBS have any issue with me paying off the lump sum and then immediately looking to switch from a variable to a fixed rate (given that they would normally penalise someone paying a lump sum on a fixed rate)?

I only want to deal with them in writing given that they turned us down for a tracker mortgage years ago over the phone after we had been on a fixed rate for the initial period of the mortgage. Had we got that rejection in writing when I'm pretty sure we were entitled to the tracker it may have been useful so I want to keep things in black and white with them this time so should I just write to them first about the lump sum and then once that's been paid to go back to them on switching to the fixed rate or just outline it all together, ie.

1) I want to pay a lump sum off the capital on my mortgage
2) Once that lump sum has reduced the capital I then want to switch to your fixed rate of 3.15 for X amount of years.
 
Do it all as one, exactly as you've outlined.
I think EBS have a form to complete for switching to fixed that they will send you - it covers the wording that you won't revert to a tracker amongst other things.

Based on what you've said, you should check with them if you are in scope for their tracker redress programme.
 
rkck15 said:
Will the EBS have any issue with me paying off the lump sum and then immediately looking to switch from a variable to a fixed rate (given that they would normally penalise someone paying a lump sum on a fixed rate)?
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No. As a variable rate customer you can overpay your mortgage without penalty as you wish. This is part of the variable product.
What you do afterwards is a separate discussion. The conversation is then to fix (+ potential overpay) or switch.

rkck15 said:
I only want to deal with them in writing
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rkck15 said:
should I just write to them first about the lump sum
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For some things yes, for some things no. You don't have to deal with them in writing to pay a lump sum. You just ask them what you need to do to make the lump sum payment into. This is a standard request for a variable rate mortgage holder.
UNLESS
you wish to discuss with them the prospect of clearing down your arrears via an over-payment and in return they would clear the ICB record? I am not sure if they would entertain this, but I do think you should consider writing to them and requesting it. It might be a long shot, but if it was me I would try it, and at least I have the answer in writing ! If they say no, I would consider raising a formal complaint just to have the whole process in writing. I think it would be worth it for a clean ICB record

In that case you may wish to consider a 1 year fix period while the complaint would be processed, if they did not agree to it up front.

rkck15 said:
then once that's been paid to go back to them on switching to the fixed rate
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RedOnion said:
Do it all as one, exactly as you've outlined.
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I disagree with RedOnion here :) I would treat them as two separate requests, especially if you can clear your ICB record with the first one, or reduce the time it is impaired.
Doing them as one assumes you want to stay with EBS no matter what, or are you considering moving to someone else? They will be two separate requests into EBS as they are different forms/processes to use anyway


elcato said:
If it was me I would write to the EBS mortgage department asking about whether they would be willing to match the KBC 10 year rate. At worst it might perk them up a bit to try and keep you.
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I think this may not be as straight forward as you would hope if the customer has an impaired ICB record. It is better to try clear that than make requests to EBS that they know are unlikely to be agreed to.

Good luck with it all - and I would check the ICB record beforehand just to see what it says !
 
Thanks for all the advice guys. Few things to think about but first step will be to get the ICB reports and see where we stand.
 
Hi Guys,

Just coming back on this thread. I got our ICB reports and they appear to be clear, nothing noted on there in any negative terms so with that being the case I guess it's worth looking at switching our mortgage to someone else. So my next question is should I pay the lump sum off the existing mortgage first and then switch or switch and then pay the lump sum. I'm guessing the first option makes more sense but open to suggestions!
 
I would pay the lump sum off ASAP. If you move mortgage, you will have lower amount outstanding, which means your LTV will be lower, which means you will get better rate. Plus, you will be paying less interest from the moment you pay the lump sum off.

The only reason I can think of not to pay off lump sum immediately is that you will have only E60K mortgage outstanding. I'm not sure, but if you looked to change provider, is there a chance some providers will not provide a mortgage for such a (relatively) small amount, and might consider it a personal loan instead? Worth checking out.
 
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