# How do lenders calculate cost of breaking a fixed rate?

#### NorfBank

##### Frequent Poster
The formula used by the banks is as follows:

Amt x (Rate on loan offer - rate available in market) x Time remaining in days

Divided by 36500.

So [€400000 (5.15 - 4.4%) x 600 days] / 36500

=> 400k x 0.75 x 6 / 365 = €4932

I have just assumed the rate available in market to be 4.4%. the bank will have the exact rate so this is where they get the €5k from.

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#### pinkie123

##### Frequent Poster
i took a fixed rate mortgage from BOI in july of 4.89% [2 yrs] on a 307k mortgage. 2 yr fixed today is 4.8%. From your calculation it will only cost me €5 euros to change??

307 X .09 X 5.8/365

#### Bronte

##### Frequent Poster
i took a fixed rate mortgage from BOI in july of 4.89% [2 yrs] on a 307k mortgage. 2 yr fixed today is 4.8%. From your calculation it will only cost me €5 euros to change??

307 X .09 X 5.8/365
Always get a written statement from the bank as to exactly what it will cost to change and even then make sure it's equal to what's in your terms and conditions, banks have been known to make errors, they can also be open to negotiation especially if you're on a compartively low rate versus current rates.

#### NorfBank

##### Frequent Poster
Unfortunately not, you don't use the current 2 year fixed (4.8%) as a reference point. You would need to know the cost of refinancing your mortgage for the remaining part of the fixed rate period (Nov 2008 - July 2010) in order to calculate your penalty.

Assuming the rate is 4.4% then your penalty would be around €2390.

3070 x 0.49 x 580 / 365

#### pepperds

##### Registered User
Assuming the rate is 4.4%
Is this rate coming from the LIBOR rate that Banks borrow and lend at?

#### NorfBank

##### Frequent Poster
EURIBOR.

(LIBOR is the London Interbank Offered Rate)

#### pepperds

##### Registered User
Great thanks - too much Sky News

#### Kate10

##### Frequent Poster
Norfbank I'm not following you...when we broke out the formula was as follows:

rate at which we fixed less equivalent rate applicable on the day we broke out multiplied by remainder of fixed period.

We had fixed for 3 years so it was the difference between our fixed rate and the 3 year fixed rate available on the day we broke out.

If pinkie's bank had the same formula as AIB, then his breakout penalty would be approx €436 ...i.e.

307,000 X.09% X 1.58 = €436

#### shoppergal

##### Frequent Poster
gosh i just checked ptsb website for rates to see if this would be worth doing. they're quoting 6.25% for a 2 year fized. this is 1% higher than a year ago when we fixed. and i though rates were going down!!!

S

#### Senna

##### Guest
the forumla used here might be correct for some banks but not all. some banks will charge a fee first then work out what it cost them for you to break the fixed term. So it may cost them €500 but the fee could be €4000, so your cost to break is €4500.
I think EBS use this and others also.
Ask your bank for the info, they are the only one that can tell you, anyone on here is speculating and probably incorrect.

R

#### rmelly

##### Guest
gosh i just checked ptsb website for rates to see if this would be worth doing. they're quoting 6.25% for a 2 year fized. this is 1% higher than a year ago when we fixed. and i though rates were going down!!!
Did you contact ptsb directly? Their website is quite poor in general, they seem slow to update it, so I wouldn't rely on the rates being the current ones.

#### NorfBank

##### Frequent Poster
PTSB 2 year fixed is 5.75%.

N

#### Nickbk1978

##### Guest
NorfBank - You are incorrect in how you are calculating the penalty fee for breaking out oof an AIB fixed mortgage. They calculate the breakout cost against the current rate of the corresponding fixed rate product you are on.

ie if you are on a 3yr fixed rate mortgage at 5.0% and the current 3yr fixed rate mortgage is 5.2% then there is no charge to breakout, simple as that.

if you are on a 5 yr fixed rate mortgage at 5.2% and the current rate of the 5 yr fixed rate mortgage is 5.0% then you will pay whatever the reduction in your monthly payment would be by switching MULTIPLIED by the no. of months remaining on the fixed term.

I switched Monday and was on a 4.7% 2 yr fixed rate. There was no charge to get out of this as the current rate is 5.2% for a 2yr fixed rate product. I am now on the SVR of 4.5% and am hoping this will come down again by .5% in the next few months which would save me about 300 euros every month.

#### NorfBank

##### Frequent Poster
NorfBank - You are incorrect in how you are calculating the penalty fee for breaking out oof an AIB fixed mortgage.
Nickbk1978 - I didn't use that formula to calculate a breakage penalty for AIB. I was responding to pepperds and pinkie who both have mortgages at BOI. That calculation was in response to their queries. Apologies if this was unclear.

AIB do not use that formula as you and Kate10 have pointed out.

W

#### wallacek

##### Guest
I have a 3 year fixed morgage with Permanent tsb contacted them with regard to chaning to variable rate got a letter to state it would cost €5,600