Case study AIB break fee not in line with other banks?

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_ripped_off

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Hi, just wondering has anyone successfully challenged the breakage quotes from AIB and the way they are calculating them.
We are nearly 2 years into a 34 year mortgage which is split 50% variable (3.15%) 50% fixed (3.8%). Obviously we cant move half a mortgage to another provider but we are being quoted E2600 to break the fixed part of the mortgage.
Lender: AIB
Rough value of property (needed to assess if switching to another lender is advisable): 425,000
Amount of mortgage balance outstanding: Fixed portion 175,969.68, variable portion 174803.85
Date you fixed: May 2017
Period for which you fixed 5 years
Fixed rate 3.8%
Term left: 3 years exactly
Breakage fee quoted E2636.04 (*this was quoted at the start of February 2019 so may have reduced marginally since then)

I have requested an updated breakage quote but I expect it will be around the same amount so I'm not sure if its worthwhile to break the fixed mortgage and move the whole lot to another lender after solicitor fees valuations etc. Is the quoted breakage fee correct?
 
@_ripped_off
I don't agree with how AIB calculate the break fee. But I haven't really been able to successfully challenge it yet with anyone. The way they calculate it, the fee will go up from tomorrow as they reduce their fixed rates.

Using market rates, your break fee should be approx 1,800
 
_ripped_off said:
Hi, just wondering has anyone successfully challenged the breakage quotes from AIB and the way they are calculating them.
We are nearly 2 years into a 34 year mortgage which is split 50% variable (3.15%) 50% fixed (3.8%). Obviously we cant move half a mortgage to another provider but we are being quoted E2600 to break the fixed part of the mortgage.
Lender: AIB
Rough value of property (needed to assess if switching to another lender is advisable): 425,000
Amount of mortgage balance outstanding: Fixed portion 175,969.68, variable portion 174803.85
Date you fixed: May 2017
Period for which you fixed 5 years
Fixed rate 3.8%
Term left: 3 years exactly
Breakage fee quoted E2636.04 (*this was quoted at the start of February 2019 so may have reduced marginally since then)

I have requested an updated breakage quote but I expect it will be around the same amount so I'm not sure if its worthwhile to break the fixed mortgage and move the whole lot to another lender after solicitor fees valuations etc. Is the quoted breakage fee correct?
Click to expand...

While the break fee is high, if you switch to Ulster Bank @2.3% fixed you will save €2625 (€175 x 1.5%) + €1485 (€175 x .85%). Still worth it despite the fee.
 
Thanks for the replies. I’ll await the updated breakage quote from AIB and go from there. Slightly off topic how likely is it that AIB will drop their variable rate?
 
Red onion. Just received an updated breakage quote of €4700 Approx. shocked to say the least. Still don’t know how they have calculated it exactly. That is proving difficult to confirm with them :mad:
 
AIB are acting the maggot .the indicative break fee they quote is driven primarily by the difference in the Mortgage rates (A). If you decide to go ahead they will then calculate the break fee based on the funding cost difference (B). They will then charge you the lower of A or B . This info is give on the site AIB Mortgage Homeloan Regulatory information. I the current climate A will be higher and will be quoted to you whereas B will be lower but won't be quoted . I'm very surprised that the Central Bank allow this misleading info to be provided to the customer .
 
Apparently AIB are working within the 2016 EU directive and the directive doesn’t specify the calculation to be used on the breakage fee. AIB have also stated that they are not making any money from the breakage fees they are charging from what I am reading it’s too do with the hedging of their fixed mortgage book or some such! However where they are making money is keeping people tied to those high fixed rates I certainly can’t afford to cough up that sort of breakage fee. Back to the drawing board!
 
Pinesky said:
AIB are acting the maggot .the indicative break fee they quote is driven primarily by the difference in the Mortgage rates (A). If you decide to go ahead they will then calculate the break fee based on the funding cost difference (B). They will then charge you the lower of A or B . This info is give on the site AIB Mortgage Homeloan Regulatory information. I the current climate A will be higher and will be quoted to you whereas B will be lower but won't be quoted . I'm very surprised that the Central Bank allow this misleading info to be provided to the customer .
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Just looked this up and see what you mean Pinesky but I think the quote I’ve been given is the lower of A or B as when I calculate A using their formula I get over 5k...Will give them a ring and see if I can get any more info on it
 
So AIB wrote to me with a “breakdown” of how they are calculating the break fee. It is the formula on their website which they claim they use because of their hedging obligations. But they have not confirmed at what rate they hedged at do they have to disclose this?
I can’t imagine they hedged at the same rate as they are charging.
O there is a small reduction from the actual formula due to The net present value of up front collection.
I Don’t think there is much hope of them changing how they calculate the break fee.
 
sorry as promised the exact wording of the letter "detailing" the breakdown calculation. I am guessing it is the banks outstanding obligations I need further details on?

"...Breakage cost on 15th April 2019.

The fixed interest rate applying to your mortgage loan is 3.8%.
the unexpired term of your fixed interest rate contract is 37 months. (Fixed rate is not due to expire until May 2022)

AIB Mortgage Bank has outstanding obligations for 37 months to its fixed interest rate.

I have assumed that a rate of 2.85% will be achieved for a 37 month fixed interest rate. (this is the banks fixed rate in this case it will be the banks 4 year fixed as there is 37 months on the loan term and this would fall into the 4 year band.

The difference between your rate and the current fixed rate is 0.95 % i.e. 3.80% (existing rate on the loan - 2.85% (4 year fixed rate being compared to 15th April 2019).

The interest rate differential is applied for the 37 months to the projected load balance of €175,969.68 plus interest accrued but not charged of €568.83.

Calculation is €175,969.68 x 37/12 x 0.95%

The total break cost works out at €5,171.11

This is then reduced to its Net Present Value (NPV) to reflect the up-front collection, rather than over 37 (the fixed rate term) months resulting in the breakage cost of €4,769.56.

Please note that the above is only an estimation and is subject to variation..."​
 
@_ripped_off

I'll send you a PM with the wording for a letter of complaint at some stage tomorrow.

I just need to estimate the market funding costs properly.

I believe AIB are in breach of the MCD in their calculation in your case.

Red
 
_ripped_off said:
Breakage cost on 15th April 2019
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Hi, can you request a new break fee on Monday? Don't even discuss the previous one with them.
AIB have amended their T&C's during April, and I want to see if they apply the new ones to you now.
Separately I'll send you wording for complaint if it hasn't changed.
 
RedOnion said:
Hi, can you request a new break fee on Monday? Don't even discuss the previous one with them.
AIB have amended their T&C's during April, and I want to see if they apply the new ones to you now.
Separately I'll send you wording for complaint if it hasn't changed.
Click to expand...
Sure will ring them first thing tomorrow. Thanks for the help Red!
 
_ripped_off said:
Sure will ring them first thing tomorrow. Thanks for the help Red!
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As a matter of interest, can they quote you a break fee straight away over the phone, or do you have to wait for them to get back to you? Each if the banks is different, and I never bothered to fund out about AIB.
 
RedOnion said:
As a matter of interest, can they quote you a break fee straight away over the phone, or do you have to wait for them to get back to you? Each if the banks is different, and I never bothered to fund out about AIB.
Click to expand...
No they won’t quote over the phone i don’t think. When I rang to get a breakdown of the calc their response was “o that’s not calculated by them it’s another department, they’ll send it in writing in 10 working days”. I’ll ask tomorrow if they can give the break quote over the phone.
 
Hi all,

Just wondering if you’ve had any update from AIB. I’m in a very similar position to _ripped_off, just been quoted €3,765 to break a 5 year fixed term (drawndown in July 2017) at 3.8% with €140,000 remaining (original amount was €150,000) and I’m stunned to say the least.

Thanks.
 
Hi RedOnion, thanks for coming back. The quote was dated 16th May. I've asked for a breakdown, but guessing I'll be given something like the previous poster received.
 
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