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. FrankLloyd

    FrankLloyd Registered User

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    Last edited by a moderator: 22 Dec 2017
    Hi All,
    Given the recent media coverage and my reading of this forum I contacted my bank today to ask what my breakage fee would be. Based on the examples I've seen here, I was surprised at how high it was. See below for the details - does this sound right to you?

    Lender: Bank of Ireland
    Rough value of property: €300k
    Total amount borrowed: €210,000
    Amount of mortgage balance outstanding: €202,000
    Date you fixed: May 2015
    Period for which you fixed: 5 Years
    Fixed rate: 4.15%
    Term left: 29 Months at 4.15% (overall term left = approx. 33 years.)
    Breakage fee quoted: €2921

    Even with this breakage fee it should still constitute a saving of approx. €2000 to break now and switch to a 3 year fixed rate of 3%, so we will most likely do this, but like I say I was just surprised at the breakage fee quoted so wanted to ask for a second opinion.



    Thanks in advance for any replies/advice.
    J.
     
    Last edited by a moderator: 22 Dec 2017
  2. RedOnion

    RedOnion Frequent Poster

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    2,088
    Hi Frank,

    This would appear correct. It's based on the difference between 5 year interbank rate 2 years ago, and 3 year rate now. It calculates as just over 0.3% which looks correct (I don't have access to Bloomberg at the moment to confirm the rates).
    As you note, you'd still save money breaking and re-fixing for 3 years, even with the break fee.
    On the other point about overpayment - check if what you've suggested results in a permanent reduction in your mortgage term - i.e if things get right later are you stuck with the higher repayments?
     
  3. FrankLloyd

    FrankLloyd Registered User

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    3
    Hi Red,

    Ok, thanks for confirming.

    And yes, the same thought struck me about the over-payment becoming the "regular" payment - I'll check that out in more detail and let you know.

    Thanks,
    J.
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    I wonder if the fee is negotiable?

    You should look at switching to another lender and getting the cash back e.g. EBS.

    BoI is the bank which is most likely to do deals with customers to keep them.

    Ask your solicitor to request the deeds and it's likely that BoI will call you to find out what you are doing and what can they do to keep you.

    Brendan
     
  5. MalahideMan

    MalahideMan Registered User

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    Hi Brendan

    This is really useful to know. I enquired of my own bank and got the following details over the phone

    Lender: Bank of Ireland
    Rough value of property: €630k
    Total amount borrowed: €520,000
    Amount of mortgage balance outstanding: €499,000
    Date you fixed: July 2015 (although I think the 1st payment came out in Sept that year)
    Period for which you fixed: 3 years
    Fixed rate: 3.8%
    Term left: 7-9 months
    Breakage fee quoted: c€1,400

    They said that any savings over the remainder of the term would be more or less wiped out by the breakage fee. That said, the lower monthly repayments are tempting from a cashflow / household budget perspective (3% for 3 years would save me about €200 per month). Perhaps I can negotiate on the breakage fee too?

    Would you recommend breaking and refixing now or waiting until my 3 year period is up in the summer?

    Thanks
     
  6. Brendan Burgess

    Brendan Burgess Founder

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    You can fix for three years at 3%.
    So you save 0.8% of €500k for 6 months at least
    That is €2,000

    Well worth it.

    Brendan
     
  7. Cathbarr

    Cathbarr Registered User

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    3
    Hi Brendan

    I also enquired with my bank and this is what they told me..

    Lender: ebs
    Rough value of property (needed to assess if switching to another lender is advisable) 400000
    Amount of mortgage balance outstanding 120000
    Date you fixed: April 2010
    Period for which you fixed 10 years
    Fixed rate 4.85%
    Term left 27 months
    Breakage fee quoted 8800e (as of today)


    Is this correct? Or would I have any hope in getting them down if I challenged them?
     
  8. smithers

    smithers Registered User

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    I got my hopes up with this thread, we owe about 115,000 to PTSB on a 10 year fixed rate of 4.5% due to end in March 2021. We should owe 169000 but have been overpaying it for years so the difference is a credit on the account, they only calculate the interest on the 115,000. I rang PTSB and told them about the directive and they said yes they would send me out the calculations and it should as per directive. I have received the quote and it is 18,210!!!!!!!!!!!!!!!!!!!!!!!!!!!! to break the mortgage, where do I go from here, I wish I never signed up for the mortgage but hindsight is a great thing.

    What can I do now???
     
  9. RedOnion

    RedOnion Frequent Poster

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    2,088
    Hi @smithers

    Firstly, sorry for getting your hopes up. We probably didn't have enough posters with long term fixed rates, and focused on those that had fixed after we hit the bottom of interest rate cycle in early 2016.

    PTSB state that they calculate the break fee based on interbank swap rates, which is a very transparent way of doing it, and I think is fully in keeping with the spirit of the legislation.

    So if we look at March 2011 when you started fixed rate, the swap rate was about 3.4% for 10 year fixed (if you think about it you got a great deal compared to the margins being charged now!).

    Now you want to break with 4 years remaining. The 4 year rate is approx 0.22%.

    So the calculation should be (3.4% - 0.2%) * 169000*4. Or about 21k. They use less than 169k, as it need to account for the reduced balance over the period.

    Now, if they use a balance of 115k, it reduces to about 14k.

    Unfortunately, in your circumstances because market rates have fallen dramatically over the time period, there's no benefit to you in breaking, unless you just want to pay off the balance.

    However, if they allow you to overpay continuously without penalty, keep using that.

    Also, don't forget variable rates went above your fixed rate during the last 6 years, so it wasn't all that bad a decision to fix. Especially given the Greek government were paying 12% at the time you fixed!

    I hope the above helps explain it?

    You could also try negotiate a reduction, depending on your intentions.
     
    Sarenco likes this.
  10. smithers

    smithers Registered User

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    Thanks RedOnion your post explains it clearly, no more mistakes with mortgages! I am part of the central bank tracker review as well, still waiting to hear if impacted! I hate borrowing money now I am trying really hard to just get rid of the mortgage and all other debts!
     
  11. Itchy

    Itchy Frequent Poster

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    243
    I am with my current lender 6 months @ 3.7% variable. I intend to switch in another 6 months with the aim of collecting cashback. However, there may be a possibility to change to a 1 year fixed @ 3.15%. That new rate would save me approx €150 per month (principal is ~€400k). In calculating the break cost where would I find the interbank cost of funds so I can run some numbers?

    IF the break cost would be no more than €900 then I wouldn't lose out, but I would also have a 'hedge' in the event of a delay or some inability to switch down the line. Would this be an accurate assessment?
     
  12. RedOnion

    RedOnion Frequent Poster

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    Hi @Itchy
    You're currently with EBS? Why wait 6 months to switch? Some lenders are now taking switchers at 6 months.

    Because you're looking at 12 month rates, just Google EURIBOR, and you'll get lots of sources. However, the key is what the 6 month rate will be in 6 months time. That's what'll determine your break fee.

    http://www.euribor-rates.eu
    This has rates up to previous day.
     
  13. Itchy

    Itchy Frequent Poster

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    243
    Ah thanks, wasn't sure which reference rate to use.

    Who are those lenders? BOI and PTSB both require me to be with my lender 12 months. The 2% over 12 months is obviously more of a priority for me rather than rate at the minute.

    Thanks Red
     
  14. RedOnion

    RedOnion Frequent Poster

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    @Itchy my understanding is that UB will consider switcher after 6 months, so long as they've had the Mortgage more than 12 months. They'll need history of full term.
    I can't seem to find a link at the moment, but I'd read it as a change in policy recently.
     
  15. athene_niu

    athene_niu Registered User

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    Lender: Bank of Ireland
    Rough value of property: €550k
    Total amount borrowed: €385,000
    Amount of mortgage balance outstanding: €360,000
    Date you fixed: July 2017
    Period for which you fixed: 2 Years
    Fixed rate: 3.25%
    Term left: 17 Months at 3.25%

    I want to pay lump sum 140k, I checked BOI variable rate is 3.9% , or fixed term (1 or 2 years) is 3%.

    I'm not sure if this calculation is correct if I choose fixed term after pay the lump sum?
    360000*(3.25-3)%*17*30/365 = 1258
    Could anybody help to calculate how much roughly I need pay the breakage fee if I'm wrong ? Also if I switch to variable rate, how much I need pay the breakage fee ?

    Thanks million
     
  16. RedOnion

    RedOnion Frequent Poster

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    @athene_niu ,
    BoI calculate the break fee based on the rates at which they can borrow / lend in the interbank market. Rates have fallen marginally since you fixed, but not much. That'd mean a small break fee.

    If you contact the bank and ask for a break fee they will provide you an exact figure. You should ask for 2 numbers: just repaying the lump sum, and for breaking to refix at their new rates. I wouldn't recommend BoI variable rate.

    Back of an envelope break fee for paying lump sum should be no more than 420.
     
  17. Cathbarr

    Cathbarr Registered User

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    3
    I also enquired with my bank and this is what they told me..

    Lender: ebs
    Rough value of property (needed to assess if switching to another lender is advisable) 400000
    Amount of mortgage balance outstanding 120000
    Date you fixed: April 2010
    Period for which you fixed 10 years
    Fixed rate 4.85%
    Term left 27 months
    Breakage fee quoted 8600e (as of today)


    Is this correct? Or would I have any hope in getting them down if I challenged them?

    Also got a letter from them today saying the original swap rate is 3.29% the breakage swap rate is 0.05% so the difference is 3.24%. I've no idea what these terms are.
     
  18. RedOnion

    RedOnion Frequent Poster

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    Hi @Cathbarr
    Unfortunately your scenario is one we hadn't thought about. You fixed when we were still in the financial crisis, and rates have fallen dramatically since, so there is a break fee.

    So the numbers mean EBS had to pay 3.29% to fix interest fir 10 years at the start. If they place that on deposit now for 27 months they would receive 0.05%. so they calculate break fee on the difference (139k *3.24%*26/12).

    Basically you'd have to get an interest rate of 1.6% on you Mortgage to be worthwhile breaking.

    You could try negotiate, but it would have to be below 5000 to break even on moving to a 3% rate.

    I can do some more calculations if there's anything else I can help with.
     
  19. uberw0

    uberw0 Registered User

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    registered to acknowledge this thread, which the indo piece brought to my attention, on foot of which I've shifted from a 7 year fix with 63 months to run @ 3.7% to a 5 year fix @ 2.5% with no break cost. Big saving for us, so thank you.
     
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  20. Cathbarr

    Cathbarr Registered User

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    Thanks for your help red onion. Guess well just have to suck it up. :) we took a gamble and it didn't pay off. To help ease the pain I look at it as a stress test for us. Hopefully we'll be in a good bargaining position when our fixed term is up.