Partial Redemption : Fixed Mortgage

[balga]

Hello,

We are FTB's purchase Sept 2000. We decided to fix the mortage in 2004 (at 3.95%) the fixed term expires Nov 2007.
We have (very unexpectedly) received parental gift which has to be put towards the mortgage. The gift represents almost two thirds of the outstanding mortgage amount.
The money is required to go towards the mortgage as it (the gift) is received.
I have received quotes for the partial redemption breakage fees for capital payments of 100K (1975E) and 80K(1580E); and for conversion from fixed to variable rate with no capital payment(4K+). The quoted variable rate is 4.5%.
I have asked the (very helpful) member services person to send me breakage fees for a range of capital payments, from 10K to 70K, in an effort to find the optimal ie cheapest breakage fee.
Also the partial redemption payment can be used to either pay off the capital or reduce the term, but not a combination of both.
The more appropriate choice might be to wait until the fixed term expires (Nov 2007) and place the gift in an interest bearing account (or similar) until then, but this is not possible.
I would be interested to read of any other (similar) experiences.

 

[Ravima]

the amount of penalty is the same per thousand, or should be! therefore the penalty as a percentage of 10K will be the same as that of €100K.

If the money is coming as a gift and it must be put towards the mortgage immediately and you cannot put it on deposit until Nov 07, then you do not have much choice do you?

The only sugestion is to put hte money towards the mortgage as and when it is received and pay the penalty. You will be rewarded with lower payments every month, which will offset.

Would it be possibel to put the money into some form of interest bearing account, with the same institution? That way, the donor need not know that you are putting it on deposit temporarily as any receipt can be for a lodgement to the account. If doing that, I suppose you should give some form of undertaking to the institution that the money will be put against the mortgage in Nov 07. on expiry of the fixed rate term. Like the moralists of old, you are applying the money straight away against the mortgage, but not necessarily as the donor anticipated at the time of the donation.

 

[balga]

Thanks for that.

I am not too concerned at having to pay the breakage fee. The (unexpected) gift has to go towards the mortgage, so I don't have a choice.

Was more interested to learn of the breakage fee - and yes it is a fixed amount per 10K - and of the choice between reduced term or reduced payment.

It looks like I will make a capital payment of 10K to break the loan and accept the fee. The mortage then reverts to a variable rate and I will deposit the remaining 90K. This will be used, in the first instance to reduce the payment as I expect further capital payments to be made during 2007.

Again, cheers.

 

[balga]

Simply to update the last post.

Contrary to (written) advice received from the mortgage institution, the loan remains on a fixed rate. To break entirely from the fixed rate requires a payment of over 4KE. This would be a somewhat interesting course of action anyway.

Since 20K has already been deposited into the mortgage account(reducing the capital), the remainder will go into a suitable account until the fixed term expires.

It appears that there was an (unfortunate) breakdown in communication between member services and loans/operations of the financial institution concerned.