Breakage fee advice

Rob F

Registered User
Messages
23
I’m currently in the process of switching mortgage from BOI to EBS for the 2% cashback offer again. Last summer I fixed with BOI for 3 yrs at 3.1% (210k), 2 years of the term are left. I rang BOI to see what the breakage fee was and it was €450. They then queried why I wanted the breakage fee and I told them I was going to switch. They then offered me 1,2,3 yr fixed rates of 2.8%. My queries is, is it cheaper to take the 1 yr fixed and breaks straight away or stay as I am and pay the €450? Any advice would be great
 
You're really taking a gamble on interest rate movements with a decision.

Have you already started the switch process, and how long will it take?

I'll try do some calculations for you to help you decide.
 
I have completed that application ie. all paperwork and valuation. Im hoping to be done in the next 4-6 weeks. I think it would be as close to breaking the one year rate after getting it. I've the forms signed and ready to go. Either way I'm switching Id just rather make as much as possible from the move.
 
I hope I'm not confusing you with this. It's impossible to predict short term rate movements (or I'd be in a different job!) so all I can do is point out different things that could happen.

Ok, so you're current break fee of 450 means that the 2 year rate now is about 0.11% lower than the 3 year rate was when you fixed. Sounds right. This quote could change daily if interbank rates move.

Let's say you've 6 weeks left - what does the lower rate save you? 210k*.3%*6/52 = 73 euro

If you break now, you pay a 450 break fee & save 72 Interest, but run the risk of another break fee to end the 1 year rate early. What might that be? You'd be looking at the 12 month interbank rate, which is currently -0.178%. This year to date it's operated within a range of -0.178 to -0.191, so relatively stable. If rates fall, you'll have a break fee. If they fell 0.05% in the 6 weeks (an extreme case given range rates have stayed within), you'd have an additional break fee of 105 (and you'll have saved 70 interest). If they remain as they are, or rise, you'll have no additional break fee.

If you don't break now, there are 2 scenarios:
1. The 2 year interbank rate falls. for every 0.01% fall it will cost you 42 euro.
2. The interbank rate rises. every 0.01% will reduce the 450 break fee you were quoted by 42 euro.

The 2 year rate has been stable within a narrow range, so unless there's something unexpected in the market, it's not going to move by more than about 0.05% in such a short term (again an extreme). It dropped a bit in late May when the trade war between US & EU escalated, but you're talking about 0.04% movement from min to max in 3 months from May - July.
 
What is the rate with EBS? You would get 2% of what if you switch? How much does it cost to switch other then the break fee of 450? How much less interest would you pay in a year. What are the 1,2 & 3 year rates with BofI and are they allowing you to switch with no break fee?
 
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