Key Post Examples of the cost of breaking a fixed rate early

Eoghan

Registered User
Messages
36
Moderator's note: I have copied these posts from the original thread and edited them to focus on the costs of breaking out.

Summary of figures
upload_2017-7-24_11-13-12.png


I'm a year and a half into a 3 yr fixed with ulster bank at 3.75%. I've improved my savings rate and have saved 30000e and want to break out of the fixed for 329e and pay off 21000e to get to <60% LTV and switch to loyalty discounted variable.
 

Attachments

Last edited by a moderator:

RedOnion

Frequent Poster
Messages
3,774
Hi, what's your current mortgage balance? I want to do some calculations before I respond.
Also, has bank confirmed your break cost?
 

RedOnion

Frequent Poster
Messages
3,774
1. Should you break your fixed rate for Eur 329?
You're currently paying 3.75%, with 18 months left in the term.
UB will allow you to break this for 329, or an annualised 0.18% over the remaining term.
If you switch to the loyalty discount rate of 3.2%, you'll be saving 0.55% per year
Over 18 months, that's a a saving of 685 (1,014.75-329). I'd say go for it.

It's very interesting to see an actual breakage quote, and aligns with what other posters (including @Sarenco ) have been saying about breakage costs - they must be tied to market rates, and as markets have been relatively flat for the past 2 years breakage costs are very low at the moment. It might be worth while for people on higher fixed rate to investigate what their break costs would be...
 
Last edited by a moderator:

Moon light

Registered User
Messages
36
Very interesting post there, I too locked into a 3 yr fixed rate @ 3.5%, and with 19 months left to go on it was quoted a breakage fee of €4400, Does anyone have any idea why the breakage fee was so high, Bank is Dilosk, seems very high compared to what Eoghan was quoted from UB.
I owed 160k at the start of the 3 yrs fixed, and was allowed to pay 10% off only during the 3 yr term,
They have told me there is no negotiation with them, either pay the full amount or remain locked in,
 

RedOnion

Frequent Poster
Messages
3,774
This is interesting. I've checked UB and BoI, and they're clear the break cost is based on the banks funding rates ( wholesale markets), but AIB suggests it's based on customer rates.
Do you have the wording around break costs from your Dilosk fixed rate agreement?

There's actually a clause in legislation
"2) A creditor shall be entitled to fair and objective compensation, where justified, for possible costs directly linked to the early repayment, but shall not impose a sanction on the consumer, and any such compensation shall not exceed the financial loss of the creditor."
'objectively justified' would be a difficult test to pass using customer rates.

http://www.irishstatutebook.ie/eli/2016/si/142/made/en/print
 

Moon light

Registered User
Messages
36
Thanks for your reply RedOnion, here is the wording -

If you repay your mortgage loan when you are on a fixed rate of interest, it is likely we will suffer a funding loss,
If we suffer such a loss you must pay us compensation when we ask you to pay it,
Such compensation will be equal to "C" where C = A x ( R% - R1%) x D

A = The amount repaid early (or the amount which is changed from the fixed rate to a new rate) averaged from the date of early repayment (or rate change) to the end of the fixed rate period to allow for scheduled repayments (if there are any) and interest charges.

R% = The annual percentage interest rate which was the cost to us of funding an amount equal to A for the originally intended fixed rate period.

R1% = The annual percentage interest rate available to us for a deposit of an amount equal amount to A for a period equal to D

D = The number of days from the date of early repayment (or rate change) to the end of the fixed period,

I called Dilosk there to query why the breakage fee of €4400 is so high and they are getting someone from that team to call me back,
I presume I need to find out what their R and RI is in order to work out the equation, is that right?
Tks
 

RedOnion

Frequent Poster
Messages
3,774
Hi, yes their wording is based on 'funding rate', so both R's should be interbank rates, although being a non-bank their rates might be s little higher. It really shouldn't be that high, but depends on when you fixed.
They have to provide the break costs to you in writing by the way.
 

Moon light

Registered User
Messages
36
Hi RedOnion, current balance at present is 140k, fixed in Oct 15 for 3 yrs @ 3.5%, Balance when I fixed in was 160k so was allowed to pay 10% off, done that and balance is now 140k, Would love to pay another 60 to 70k off this now but unfortunately can't unless I pay the breakage fee of €4400.
I called them again and agent could not explain what R% and R1% was, agent is getting someone else to call me on it,
So annoyed I locked in for 3 yrs !
LTV is 30%
Tks so much for all of your help,
 

RedOnion

Frequent Poster
Messages
3,774
Sorry, there's a bottle of wine between me and the right answer tonight!

Taking the info you've provided, assuming they can place money on deposit at 0% for the remaining term (15 months), it would suggest their funding rate on the fixed term was about 2.45%.

Now, when you entered the fixed term is important in 2 ways. Firstly, it was after Dilosk issued bonds, so we know publicly that they were able to get funding from 80bps over Euribor, so we can estimate their actual funding costs if we need to. Unfortunately it also means you entered into the fixed term prior to the commencement of the above referenced legislation, so you may not have the full protections re fixed rate breakage costs.

What I would suggest to you is to ask for a written breakage cost, including all assumptions they have used in such calculation.

In this regard I would ask for 2 separate calculations:
1. To break the entire fixed rate agreement
2. To repay 60 or 70k early

Once you have the details (or they refuse to provide) we can work from there.
 

Moon light

Registered User
Messages
36
Will do thanks RedOnion, and you gave me very useful info even with a bottle of vino - lol.....tks
 

RedOnion

Frequent Poster
Messages
3,774
Will do thanks RedOnion, and you gave me very useful info even with a bottle of vino - lol.....tks
Some of my very best work is done that way! :)
Mortgages aren't my area so I'm not very familiar with the legislation. If the above directive doesn't apply, there are provisions in the Consumer Credit Act 1995 that would apply. Let me know how you get on.
 
Top