BOI's Cost of Funding for Calculating Break Free for KBC mortgages

[evil_g]

Hi all. Sorry if this has been answered elsewhere but I can't find it.

We fixed for ten years with KBC in 2018. For the last year or so our break fee has been zero. This mortgage has now been transferred to BOI and I'm trying to figure out whether the break fee is likely to increase in the future.

In the booklet provided to us BOI say that to calculate the break fee for fixed rate mortgages transferred from KBC they use "the cost to us of funding an amount A for the originally intended fixed rate period"

Does anyone know precisely what that means? Does it refer to costs they would have incurred recently as part of the transfer?

Or does it refer to some notional costs that they would have incurred had we taken out the ten year mortgage with them in 2018?

These two costs are likely to be very different, and it would seem unfair that our break fee should change because of a transaction between BOI and KBC.

I know we could just contact them and ask (and we will) but the mortgage is in my wife's name so it's easier for me to check whether anyone on here has already gotten a straight answer.

 

[Paul F]

@evil_g BOI's booklet says (italics mine):

Is my breakout fee changing?
KBC include its formula for calculating a breakout fee in your mortgage offer
letter. This means it is part of your contract concerning the breakout fee and
your contract is not changing. However, if you wish to break out of your fixed
rate term early, BOI in practice will use a different method to calculate this
fee which will be more beneficial to you.

Why are BOI changing the calculation formula?
Changing the formula will align it to the method used for all BOI customers
and benefits you, the customer. We have tested KBC and BOI’s methods of
calculating breakout fees. In these tests, using BOI’s formula resulted in a
lower breakout fee for customers every time. This is because KBC base their
calculation on the balance to be repaid early, whereas BOI use the average
between the balance to be repaid early and the projected mortgage balance
(plus interest and minus scheduled repayments). This means BOI work off a
lower balance in the calculation of the breakout fee each time.

In the booklet provided to us BOI say that to calculate the break fee for fixed rate mortgages transferred from KBC they use "the cost to us of funding an amount A for the originally intended fixed rate period"

Does anyone know precisely what that means? Does it refer to costs they would have incurred recently as part of the transfer?

In the case of a person whose mortgage was always with BOI (and was not transferred from KBC), this means, in simplified terms, some specific 5-year interbank interest rate as it was on the date that they started their fixed rate (assuming they fixed for 5 years).

I believe that BOI use the EURIBOR rate for this purpose.

It is very likely that they will also use this rate when calculating break fees for former KBC mortgage customers. (KBC may also have used this rate but I'm not certain.) And it is very likely that they will use that rate as it was on the date you fixed – not the date you transferred to BOI.

So you have pretty much nothing to worry about.