Brendan Burgess
Founder
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In 2012, in the High Court, ptsb said that the computer glitch cost them €33m.
According to the press statement in 2015, only 1,152 customers were affected by this. This would give an average cost of €28,645 each.
Something is wrong somewhere. I have documented break fees at the time for other lenders, and the average break fee was €8k. The highest was €20k.
So was the €33m an overestimate?
How do lenders calculate cost of breaking a fixed rate?
breaking out a fixed rate mortgage
From the offer letter
“Early Repayment
“Early Repayment
Wherever repayment of a loan in full or in part is made before the expiration of the Fixed Rate Period the applicant shall, in addition to all other sums payable, as a condition of and at the time of such repayment, pay whichever is the lesser of the following two sums:
(a) a sum equal to one half of the amount of interest (calculated on a reducing balance basis) which would have been payable on the principal sum desired to be repaid, for the remainder of the Fixed rate Period, or
(b) a sum equal to permanent tsb's estimate of the loss (if any) occasioned by such early repayment, calculated as the difference between on the one hand the total amount of interest (calculated on a reducing balance basis} which the applicant would have paid on the principal sum being repaid to the end of the Fixed Rate Period at the fixed rate of interest, and on the other hand the sum (if lower) which permanent tsb could earn on a similar principal sum to that being repaid if permanent tsb loaned such sum to a Borrower at its then current :New Business Fixed rate with a maturity date next nearest to the end of the Fixed rate Period of the loan, or part thereof, being repaid.”
So on a €200k loan at 5% with two years to go
Interest to go for two years €20k
penalty: 50% or €10k
or
Interest to go for two years : €20k
Interest on a similar loan fixed for two years @4% : €16k
Loss €4k
Whatever way you look at it, the average cost of breaking will be much smaller than €25k
From the High Court judgement
“While ILP honoured the no penalty quotations, the uncontradicted evidence before me was that this computer error was extremely costly for ILP - with a net loss of over €33m.-and that ILP suspended switching in February 2009 when the problem was discovered until it could be rectified.”
According to the press statement in 2015, only 1,152 customers were affected by this. This would give an average cost of €28,645 each.
Something is wrong somewhere. I have documented break fees at the time for other lenders, and the average break fee was €8k. The highest was €20k.
So was the €33m an overestimate?
How do lenders calculate cost of breaking a fixed rate?
breaking out a fixed rate mortgage
From the offer letter
“Early Repayment
“Early Repayment
Wherever repayment of a loan in full or in part is made before the expiration of the Fixed Rate Period the applicant shall, in addition to all other sums payable, as a condition of and at the time of such repayment, pay whichever is the lesser of the following two sums:
(a) a sum equal to one half of the amount of interest (calculated on a reducing balance basis) which would have been payable on the principal sum desired to be repaid, for the remainder of the Fixed rate Period, or
(b) a sum equal to permanent tsb's estimate of the loss (if any) occasioned by such early repayment, calculated as the difference between on the one hand the total amount of interest (calculated on a reducing balance basis} which the applicant would have paid on the principal sum being repaid to the end of the Fixed Rate Period at the fixed rate of interest, and on the other hand the sum (if lower) which permanent tsb could earn on a similar principal sum to that being repaid if permanent tsb loaned such sum to a Borrower at its then current :New Business Fixed rate with a maturity date next nearest to the end of the Fixed rate Period of the loan, or part thereof, being repaid.”
So on a €200k loan at 5% with two years to go
Interest to go for two years €20k
penalty: 50% or €10k
or
Interest to go for two years : €20k
Interest on a similar loan fixed for two years @4% : €16k
Loss €4k
Whatever way you look at it, the average cost of breaking will be much smaller than €25k
From the High Court judgement
“While ILP honoured the no penalty quotations, the uncontradicted evidence before me was that this computer error was extremely costly for ILP - with a net loss of over €33m.-and that ILP suspended switching in February 2009 when the problem was discovered until it could be rectified.”