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. LENE49

    LENE49 Registered User

    Posts:
    1
    Lender: BOI
    Total amount borrowed: €173,000
    Amount of mortgage balance outstanding: €166,500
    Date you fixed: Jul 2015
    Period for which you fixed: 5 years
    Fixed rate: 3.9%
    Term left: 27 Months at 3.9%

    Breakage fee I was quoted as at today is €2202. Was told this fee would change daily.
    Advised it would be the end of the second year before I will see any savings if I fix at a rate of 3%.

    Just wondering is the breakage fee likely to reduce when my term left is under 2 yeasr.
     
  2. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi there, the break fee is influenced more by rate differences than remaining term. So it's crystal ball territory, but unlikely for rates to rise in next few months.

    In your case, 5 year fixed rate when you fixed was about 0.6%. the current rate for 27 months is just below zero, so you pay difference * balance * 27/12.

    If interbank rates increase, break fee will decrease.

    In your case, annualised break fee works out as 0.58% (2202/26*12/166500).
    Refix at 3% to save 0.9%

    So you'll save just over 0.3%.

    You'll have saved the break fee in interest in just under 18 months (2202/(166500*0.9%))

    It's technically worth your while breaking and refixing. One benefit is you could lock in the 3% rate for a full 5 years.
     
  3. Hedgehog

    Hedgehog Registered User

    Posts:
    4
    Lender: Ulster Bank
    Rough value of property: €170k
    Total amount borrowed: €153k (Loan to Value 90%)
    Amount of mortgage balance outstanding: €147,545 (as of April 2018)
    Date you fixed: Jan 2016
    Period for which you fixed: 5yr, Jan 2022
    Fixed rate: 3.75%
    Term left: 44 Months at 3.75%

    Just posting this now (Sunday), I'll buzz UB tomorrow and find out what breakage fee might be.
    Based on the above, what would be "best" for me to ask to move to, assuming I can?
    Is the 4 Year Fixed an option for me do you think?

    I will likey have to stay with UB, I'm a guarantor on another propertry (another story!) and UB were the only bank at the time to entertain me with a mortgage, other property is also UB.

    Great post btw, thanks Brendan.
     
  4. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    The 4 year is definitely the one they've tried to be a market leader with, and the best of their rates. You'll need to be under 90% LTV to get the 2.85% rate.
     
  5. DMartin

    DMartin Registered User

    Posts:
    7
    Hi,

    I have been speaking to my bank re break fees on my mortgage. They initially told me in March 2018 that there would not be a break fee if I was to change my fixed rate mortgage on that date but did say it is could change on a daily basis depending on the Euribid rate or investment rate available to them. They advised about 3 weeks later when I confirmed I wanted to change my arrangement that there would be a break fee. They the advised that the Investment rate (Euribid) changed from -0.03% in March to -0.23% in April resulting in a fee of about 620 Euro. In that time, none of the 8 different Euribor rates changed which are available to view daily online. As I understand it, the inter-bank lending rate and hence the banks investment rate is based on Euribor.

    Could someone clarify this for me.

    I have asked them for clarity on how the Euribid rate is determined so that I have full understanding of fees that I may be liable for. I still await a response.

    Investment Rate = The annual percentage interest rate available to the bank for a deposit”

    Thanks
     
  6. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi @DMartin
    How long is left on your fixed term?
    Euribor is only for short terms.
     
  7. DMartin

    DMartin Registered User

    Posts:
    7
    I have 2.5 years left on a 3 year fixed term
     
  8. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi @DMartin
    Interest rate movements have been minimal. The only thing jumping out is they might have used 3 year rate when you first checked, and now a 2 year rate. They might be rounding down if you're now under 2.5 years. It would explain the movement.
     
  9. DMartin

    DMartin Registered User

    Posts:
    7
    Thanks Redonion.

    That is interesting but if only the bank would come forward with the information to confirm that, then we would at least have some transparency. Bearing your quote below in mind then, and the fact that we have historically low ECB rates, if one were to go on a fixed rate today say for 10 years, and bear the cost of the break fee to have certainty on repayments, would it be reasonable to assume that a break fee would be less likely to be incurred in 4-5 years if one decides to change or switch mortgage, given that interbank rates should probably have increased from what they are today. I assume interbank rates would increase with ECB rates.

    Regards,

    DMartin

     
  10. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Yes, that's exactly my take on it.
     
  11. DMartin

    DMartin Registered User

    Posts:
    7
    thanks
     
  12. Sybil35

    Sybil35 Registered User

    Posts:
    8
    Lender; BOI
    Rough value of property (needed to assess if switching to another lender is advisable): 525K
    Amount of mortgage balance outstanding: 296k
    Date you fixed: Aug 2017
    Period for which you fixed: 3 yrs
    Fixed rate: 3%
    Term left: 29yrs
    Breakage fee quoted: 832

    Hi I'm thinking of switching to EBS for the 2% cashback, reduce term to 25yrs and split fixed (2yrs @3%) and a small amount maybe 15k variable so I can overpay more than I currently can with BOI. I'm just wondering if anyone can help with the breakage fee they have stated. Is the difference between the market rate today and the rate in Aug 2017? Thanks
     
  13. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi @Sybil35
    It works out as 0.12% annualised (832/27 months *12/296000).
    Looks about right. It should be the difference between the 3 year rate in August last, and the 2 year rate now.

    Your cashback will be 5900. Let's say you have 1500 legal fees, it's still well worth while. Reducing the term is obviously going to save you a lot longterm.
     
  14. Sybil35

    Sybil35 Registered User

    Posts:
    8
    thanks RedOnion - where can I find the current and historic inter bank market rates? My friend broke out of a 5 year BOI in Jan after 11 months and cost him nothing. struggling to understand the actual mechanics and where to get the rates.
     
  15. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi,

    I use swap rates as a proxy. It's not exactly the same thing, but I don't have access to Bloomberg currently.

    https://www.theice.com/marketdata/reports/180

    Taking your friends example, the 5 year rate in Jan 2017 was 0.108%. by Jan 2018 the rates had increased slightly, and the 4 year rate was 0.163%. So it was higher, resulting in no break fee.
     
  16. Generic Name

    Generic Name Registered User

    Posts:
    44
    Hi Red,

    You might take a look at these figures please -

    Lender: Ulster Bank
    Total amount borrowed: €458,000
    Amount of mortgage balance outstanding: €458,000
    Date you fixed: June 2018
    Period for which you fixed: 4 Years (Sep 2022)
    Fixed rate: 2.6%
    Term left: 49/50 months

    Received letter today with a break fee of €1,285.80, sound right?

    One other though, might there be any other grounds for breaking existing 2.6% fixed rate considering I only switched to it last month?

    I was considering changing to their new 2 year fixed rate of 2.3%, thereby saving around €2,750 in interest payments over the period, before any break fee.

    Thanks,
    GN
     
  17. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    Hi @Generic Name ,

    Over 4 years, with a balance that size, it only takes a move of 0.07% to come up to that break fee. Over past month there's been a little bit of a move in 4 / 5 year rates with everything happening in Italy, and a bit more certainty about timeline for ECB rate changes, so this looks right.

    You normally have 14 days to change your mind about a fixed rate, but after that they're entitled to calculate a break fee.

    As you've calculated, you still save money. If you can manage to get the 2.3% for full 4 years, you'd save 4 times the break fee.
     
  18. Generic Name

    Generic Name Registered User

    Posts:
    44
    Hi Red,

    Many thanks for your prompt reply, it’s much appreciated.

    Yes over 4 years it would likely make sense. With just 2 though I’d be at the mercy of whatever rates are on offer at that time, versus having 2.6% locked in until Sep 2022, crystal ball stuff I know. Would likely have taken the chance with little/no break fee.

    Assuming UB will have to renew their current fixed product terms in the next month or so I’ll wait and see. If they then offer rates until Mar 2021/Mar 2023 I may request a new break fee then.

    GN
     
  19. 86Crate

    86Crate New Member

    Posts:
    2
    Last edited: 18 Jul 2018
    Got in touch with KBC because of the new Fixed Term interest rates they've announced. Figures are assuming we'd break after one year.

    Lender:
    KBC
    Total amount borrowed: €343945
    Amount of mortgage balance outstanding: ~€338000
    Date you fixed: October 2017
    Period for which you fixed: 5 Years
    Fixed rate: 3.05%
    Term left: 48 of 60 months

    Breakage Fee Quoted: €1976.

    Does that sound right? Was expecting it to be a good bit lower.

    Edit: made mistake on the 'fixed date'.
     
    Last edited: 18 Jul 2018
  20. RedOnion

    RedOnion Frequent Poster

    Posts:
    2,088
    @86Crate
    Looks right. There's a 0.13% between 5 year rate last October and 4 year rate now.
    Once rare drop is more than 0.13% you're saving money.
    Just remember new rates aren't available until 3rd September so you'll need to get a new break fee closer.