KBC Break Funding Cost Calculation

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RayZor

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Moderator's note: for anybody who is thinking of switching their mortgage (or re-fixing with their current lender), consider posting your mortgage details in the switcher thread (in the format shown in the first post). You will get an estimate of the break fee (if any) and of the savings you would make from switching (or from re-fixing). Even if your mortgage is with Ulster Bank or KBC, you can still re-fix with them – and that process is simpler and usually quicker than switching to another lender.


Hi All

First post here so please excuse my lack of knowledge on this topic.

I fixed my KBC mortgage for 5 years in Jun'19 on a 2.60% fixed rate. I am now thinking of switching (likely to Avant) but am confused about the break funding cost (BFC) that KBC are charging me. As shown in the table below, this is rapidly rising and I don't know if it is being correctly calculated.

DateBalanceBFC
05/06/2020​
€ 253,885.06€ 829.36
26/06/2020​
€ 253,885.06€ 1,451.38
21/09/2020​
€ 251,616.60€ 1,929.05
09/10/2020​
€ 250,857.17€ 2,351.79

Any advice would be appreciated. Thanks in advance.
 
Last edited by a moderator:
It's plausible. The more market rates fall the higher is your break fee.

Interbank rates have fallen since June 2020. Look here.

Ask them for a written breakdown and then post the details here. Someone will be able to check.
 
So I spoke with KBC today. Their Break formula is:
B = (W - M) x T / 12 x A, where:

B = The Break Funding Fee
W = The Wholesale Rate Prevailing at the date of the existing fixed rate applying to the loan was set
M = The Wholesale Rate prevailing at the switching/redemption date for the unexpired time period of the Fixed Rate Period
T = Period of Time in months to the end of the Fixed Rate Period
A = Principal amount which is subject to the existing fixed rate and which is being switched or redeemed €250,096

So in my case this works out as:
(-0.50%--0.21%) x 44/12 x €250,096 = €2,659.36 which is another jump of €307 since the 9th October.

Thanks to the informative replies to my initial query, I had a look at the rates from https://www.euribor-rates.eu/en/euribor-charts/ and have a bit of a problem with the -0.21% that KBC have used for their calculations.

I fixed on 1st August 2019 when the rate on the above graph was -0.393%. It has not been in the -0.21% territory for about 5 years!!
(-0.50%--0.393%) x 44/12 x €250,096 = €981.21

It appears that there are no errors in the calculation by KBC, and while there may be some other factors which I have overlooked (but the -0.5% they have used this week looks accurate), my main concern now is whether the -0.21% is accurate as the drop in rates since then is causing the problem. Is there any way of validating this -0.21%?

Thanks in advance for any feedback.
 
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Hi, any advice on the -0.21% rate that KBC have said was used, and if this is legit?
 
Hi all - long time browser, first time poster!

I am in a very similar situation to RayZor. I understand the breakage formula used and how to apply it to my mortgage. What I would like to query is why a fall in the Eurobor bank rate further into negative territory can be used to justify charging customers a higher breakage fee.

If I understand negative interest correctly, the commercial banks are being paid interest by the ECB instead of being charged it. This is clearly a reduction in their cost to borrow money. Yet, this reduction equates in higher breakage costs for customers? From my (limited) understanding of the European Union (Consumer Mortgage Credit Agreements) Regulations 2016, one of the main requirements is that the cost to the consumer should not exceed the financial loss to the bank.

Why are banks being allowed to charge higher breakage fees when their cost to borrow money is actually falling?

If anyone can help shed light on this, I would be grateful!
Thanks :)
 
@rawsea
It's nothing to do with whether rates are positive or negative, but whether they are higher or lower than when you started your fixed rate period.

If rates fall, the break fee goes up, and vice versa.

Key Post - Understanding Fixed Rates breakage costs

Moderator's note: for anybody who is thinking of switching their mortgage (or re-fixing with their current lender), consider posting your mortgage details in the switcher thread (in the format shown in the first post). Someone will calculate an estimate of the break fee (if any) and of the...
www.askaboutmoney.com
 
Hi, this my first post on this forum and I suppose I just want to vent because I feel powerless versus KBC even though I know there is little we can do for a very costly mistake (or mistakes!). They are quoting us a breakage free of €21k.
  • We took out our mortgage in Jan 2018 (a bad time a month after my brother died when I did not have my thinking cap on at all!)
  • We used a mortgage broker who was pretty useless. Unfortunately, we fixed 70% of the mortgage for 10 years!!!!! The balance is variable. The rate for both tranches is 3.5%. The mortgage was for €355,000
  • We also overpaid massively for a house that we thought needed no work but it does, add kids to the picture and we could really benefit from a reduced interest rate/selling & moving.
  • We have overpaid to the max we can afford & the mortgage is now €318,000, there are 7 years left on the fixed period.
  • I have sought breakage fee figures from KBC three times since last July and the amount has been in and around €21,000 each time.
Has anyone else faced a breakage fee of this magnitude?
 
Elmtree said:
They are quoting us a breakage free of €21k
Click to expand...
Unfortunately, it sounds correct.
The 10 year interbank rate when you fixed was +1.08%. the 7 year rate is now minus 0.3%
The difference * balance * time remaining is over 20k. Because of the remaining time fixed, it has a big impact.

I'm not sure what KBCs policy is, but if you're looking to move some lenders will not apply a break fee if you move the rate over to the new property.

To get an overall better rate now, firstly if the variable portion is 3.5%, that suggests you're not getting the 0.2% current account discount?

Have the overpayments been going against the fixed portion?

You could fix the variable portion shirt term as low as 2.3%, so your total rate would be 3.14% (if the variable bit is currently 30% of the balance).
 
Hi @RedOnion would you know what the values would be for W and M for a fixed rate taken out for 2 years in May 2021? Breakage likely to occur in July upon disposal of PPR.
 
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