Key Post It may be much cheaper than you think to break out of a fixed rate early...

Discussion in 'Mortgages and buying and selling homes' started by Brendan Burgess, 24 Jul 2017.

  1. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: 24 Jul 2017
    Many lenders have reduced their fixed rates

    Many people regret fixing at higher rates a few years ago.

    Many people think that because they have some time to go in their fixed rate, they cannot switch to another lender and get a lower rate or 2% cash back.

    However, since 2016, lenders can no longer charge what they like. The fee is determined by a new regulation and must be based on their funding costs.

    In some cases, the break fees have been surprisingly small

    Here is an example of a real case

    upload_2017-7-24_11-27-40.png

    In the same thread, there is another example of a very big break fee from Dilosk.

    Red Onion has done a detailed post on the calculations here:
    Understanding Fixed Rates breakage costs
     

    Attached Files:

    Last edited: 24 Jul 2017
  2. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: 15 Aug 2018
    So what should you do?

    Let's say you have 2 years left at 4% and a mortgage of €100,000

    But you can fix with the same lender for 2 years at 3%

    By breaking your current agreement and fixing at 3%, you will save €2,000 [€100,000 @ 1% (4%-3%) x 2 years]

    So, if the cost is less than €2,000, at the very least, it is worth breaking and re-fixing.

    You may choose instead to

    • break and go on a variable rate with the same lender
    • break and switch to another lender with a combination of a lower rate and cash back
    But at the very least, you should break and re-fix.

    It's very important that you look at the interest saved and not the repayments

    This is a bit hard for people to understand. You must compare the break fee with the interest saved and not the repayments. The interest is the cost of the mortgage. The repayment includes interest and capital and at different interest rates the rate of capital repayment will be different.

    Calculating the interest saved is very simple. You will get a good enough estimate by multiplying the balance today (not the original balance) x the reduction in the interest rate.

    Brendan



     
    Last edited: 15 Aug 2018
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  3. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: 28 Jul 2017
    Has anyone else asked their lender for a quote for breaking out early?

    Please post the following details here:

    Lender
    Rough value of property (needed to assess if switching to another lender is advisable)
    Amount of mortgage balance outstanding
    Date you fixed
    Period for which you fixed
    Fixed rate
    Term left
    Breakage fee quoted
     
    Last edited: 28 Jul 2017
  4. eamo15

    eamo15 Frequent Poster

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    Last edited: 24 Jul 2017
    Bank of Ireland
    Mortgage outstanding :150000
    Date i fixed: October 15
    Period: 3 years
    Fixed rate :3.6%
    Term left :14 months fixed at 3.6 % have 26 years left of mortgage
    Breakage Fee : 585 euro..
    I'm undecided what to do but unhappy
    My LTV would also be between 50 to 60%. My argument was I wanted to break out and refix at 3% with no breakage fee but they wouldn't budge even though they know my LTV and I threatened to switch..they prob know my wife not working and the child benefit goes into current account.weve 2 children and another on way and only earn max 40k a year based on over time..not sure I can switch .my big plus is the LTV as we bought in 2013
    As they said I'd only save 125 e by breaking out we also overpay by 10% monthly . they were plemausing me on phone your doing v well etc etc fix again next year
     
    Last edited: 24 Jul 2017
  5. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: 25 Jul 2017
    You can fix for one year at 3.2%

    So over a year, you will save €600 [€150,000 @0.4% (3.6% -3.2%]
    Over 14 months, it would be €700
    Less the breakage cost of €585
    = Saving of €125

    Check out Red Onion's post:
    Understanding Fixed Rates breakage costs

    They must provide you with a detailed schedule of how they calculated this breakage cost.

    Update: It seems about right as the inter-bank rates have fallen since you fixed.



    Brendan
     
    Last edited: 25 Jul 2017
  6. TheLastBeep

    TheLastBeep Registered User

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    Lender: BoI
    Amount of mortgage balance outstanding: €418k
    Date you fixed: March 2016
    Period for which you fixed: 3 Years
    Fixed rate: 3.45%
    Term left: 20 months (March 2019)
    Breakage fee quoted: No fee

    Thought I'd share this to add to the discussion. Considering moving to the 3.0% 2 or 3 year fixed now on offer with BoI.

    I called them yesterday and was told over the phone that there would be no breakage fee based on the calculation today. I was told that the fee would be checked again when BoI receive documents back from me. This seems a bit strange, as I'd expect that they have to write to be quoting a breakage fee which is valid for a specific period? I discussed this with the adviser on the phone but they were only able to restate their stance that there would be no breakage fee today but that this would be rechecked when documents are returned. I'll wait and see what the documents say when they arrive...

    Any thoughts? Not yet sure if we should be going for the 2 or 3 year fixed. There is also 5 year fix available at 3.2%.
     
  7. Brendan Burgess

    Brendan Burgess Founder

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    Hi Beep

    Wow! That is very interesting.

    Why not switch to EBS and get €8,000 cash back? You would have a variable rate, as their fixed rates are not competitive.

    Or switch to Ulster Bank and get a rate of 2.6% for 4 years and €1,500 towards your legal fees?

    Or go for a KBC variable rate?

    What is your Loan to Value?

    I wonder if it would be correct strategically to hold off doing anything for a while to see if the other banks react to Ulster's new rate?

    What variable rate would BoI put you on if you broke now?

    Brendan
     
  8. TheLastBeep

    TheLastBeep Registered User

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    This might be a case of me not being able to see the wood for the trees and not considering other lenders. We did take the 2% cash back when wee took out the mortgage and I'm not clear if there would be any claw back on that if we were to switch. I have asked BoI to clarify.

    Our LTV is <80% but not approaching <60%.

    Not sure what variable rate we would go on to but given that breaking again in future might also incur no cost I'm inclined to fix at the lower rate and then take my time considering options!
     
  9. Brendan Burgess

    Brendan Burgess Founder

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  10. Blackrock1

    Blackrock1 Frequent Poster

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    i alerted a friend of mine to the UB 2.6% rate, he had fixed with them at 3% 3 or 4 months ago. As indicated by this thread they have confirmed no break costs and he is moving to the new 2.6% rate
     
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  11. Chino123

    Chino123 Registered User

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    Last edited: 19 Aug 2017
    Lender - Bank Of Ireland
    Rough value of property - €285,000
    Amount of mortgage balance outstanding - €240,000
    Date you fixed - March 2017
    Period for which you fixed. - 2 years
    Fixed rate - 3.55%
    Term left - 34yr 7mt
    Breakage fee quoted - €260.

    Called and got quoted €260 break free and could move to 3.2% fixed for 2 year saving approx €46 per month. Received paper work in post to complete and was delighted to see they had mistakenly given me <60%ltv rates so ticked the option for 3% fixed for 3 years. Confirmed applied to account a week later saving approx €73 a month.
     
    Last edited: 19 Aug 2017
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  12. Paul F

    Paul F Registered User

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    22
    Hi,

    This Ulster Bank page says:

    "You can make overpayments on your fixed rate mortgage. An Early Redemption Charge is due if you repay all or part of your mortgage before the end of the set fixed period, however you can make an overpayment of 10% of your outstanding fixed rate balance each year without incurring an Early Redemption Charge"

    Is this as straightforward as it sounds, i.e., can I make a potentially very large overpayment on a fixed-rate mortgage without penalty?

    In such cases, does the "outstanding balance" include the interest owed or is it just the principal?

    @Brendan Burgess I believe you were looking for a link to this in another thread. Note that it's Ulster Bank, not Bank of Ireland.
     
  13. Brendan Burgess

    Brendan Burgess Founder

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  14. Bronte

    Bronte Frequent Poster

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    Paul ring up the mortgage dept and get confirmation. Get it in writing.
     
  15. Twiggy

    Twiggy Registered User

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    I read article with interest yesterday morning (first I knew about it). I immediately contacted PTSB(they were unaware the article was in the Indo) . I fixed my mortgage in 2011 (really bad advice) for 10yrs at 6.1%. I rang several times to enquire about breaking but was quoted up to €20,000. Yesterday I was immediately told "no, will not apply to you however we will send you the cost in writing) . I have 40 months left and a balance of 75,000. Has anyone any idea how I will fair out?? This is a really interesting and informative website.
     
  16. Brendan Burgess

    Brendan Burgess Founder

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    Hi Twiggy

    It is a complicated issue and the article was unable to cover every case. Unfortunately, people who fixed 6 years ago probably will have a big break fee. It is and was very rare for people to fix for 10 years.

    Still €20,000 seems very high.

    The interbank rate back in 2011 was 1.5%
    It's now zero.
    So they should be able to charge you 1.5% x €75,000 x 3.5 years which is about €4k.

    I presume that the change is legislation applied to mortgages which were fixed before the legislation came into force.

    Do write to them and make sure you get a quote in writing and let us know.



    Brendan
     
  17. podgemci

    podgemci Registered User

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    2
    Read the article yesterday and contacted BoI. They informed me they got the mail re the EU mortgage credit directive and that they have been compliant in the way they have been charging the penalty. They quoted me €2267 breakage fee for a fixed rate term thats up in August 2018.

    Lender - BoI
    Rough value of property - 500k
    Amount of mortgage balance outstanding - 223k
    Date you fixed - Aug 2013
    Period for which you fixed - 5yrs
    Fixed rate - 5.29%
    Term left - 8mths
    Breakage fee quoted - €2267

    They told me I could put this breakage fee €2267 onto the mortgage and pay it off that way so I could switch rates straight away. Do you think it would be worth doing that.

    Padraig
     
  18. Brendan Burgess

    Brendan Burgess Founder

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    OK, so you could fix for one year at 3%

    Over 8 months, you would save €223k @2.29% @ 8/12

    which is €3,404.

    So, yes, it's worth breaking and fixing at a lower rate. (Or you could save more by breaking and switching to another lender, but that would take a few months.)

    However, that break fee seems high. I think you should break and then ask for a calculation of the break fee to make sure that they are doing it correctly.

    Brendan
     
  19. Sarenco

    Sarenco Frequent Poster

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  20. Brendan Burgess

    Brendan Burgess Founder

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    Thanks Sarenco

    I hadn't seen that but felt a glow of pride as I read my copy of the Irish Sun today. upload_2017-12-18_14-29-42.jpeg

    https://www.thesun.ie/news/1943426/...-unemployment-is-very-low-jobs-are-available/

    "I WAS impressed with Brendan Burgess of AskAboutMoney.com for chasing down the banks yet again when it came to the breakage fees on fixed rates.

    I had asked a few banks how it worked and they were giving me the ‘old’ and incorrect answer. But he persisted and got to the truth.
    He has done this before with the Central Bank, when he caught them saying our mortgage rates were lower than they were because they were including certain trackers which were no longer available."
     
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