Swallow Break Fee or Port Loan?

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lledlledlled

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About to close on house purchase having sold home.
Borrowing 488k, 35yr loan. We had 6yrs left on a 10yr fixed rate with kbc at 2.99% (incl Current account discount). To pay off the mortgage, we had to pay Break Fee of 11k, which is redeemable when we draw down new mortgage.
However, the fixed rate reverts to day #1 of the 10yrs at 2.99%, and it is unclear whether BOI will honour the current account discount when they take over KBC mortgages when the latter exit the market.

Would we be better off letting them keep the 11k BFF, and fixing the new loan for 3yrs at 2.3%.
Have loan offer from KBC so not really interested in going through the approval process with a new lender. So only interested in a straight choice between those two options.
Thanks
 
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I'm a little confused, are you saying if you keep the 10 year fix will KBC wave the break fee? If so then the 11k is to be factored in. If you have to pay it regardless then it's a sunk cost and shouldn't affect your future decision.

It's hard to offer a definitive answer as you're comparing two different rates over two terms. While the 10 year is obviously higher it does provide insurance against future rate increases (at a cost). How expensive that premium is really depends on where you think future rates will go and how sensitive your (future) finances might be to a rate increase. However, looking at the market and shorter fixes tend to be priced more competitively then longer term fixed rates.

Looking at the numbers: In the first 3 years you'd pay about €9,250 more in interest by fixing for 10 years. Interest rates would have to be about 3.6% in years 3-10 to make the 10 year worthwhile.

I know you're not interested in other providers but someone like Avant offer the best of both worlds.
 
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lledlledlled said:
Have loan offer from KBC so not really interested in going through the approval process with a new lender.
Click to expand...

This is the first mistake.
I understand that Avant is very efficient so you should be applying to them.

If you fix with KBC you will have to move anyway after three years as BoI charges existing customers very high rates.

So get the whole job done now.

Brendan
 
Can you clarify

1) How much was outstanding on your mortgage when you repaid it? Let's say it was €300k for example.

2) You are now borrowing €488k. Are you saying that you must borrow the entire €488k over 10 years at 2.99% to get €11k back?

3) I would have thought that the €300k was at 2.99% and the balance would be at their current rates. Ah, I see that their 10 year rate is 2.99% still.

4) Can you borrow the €300k over 10 years and the balance over 3 years?
 
Subject to the above clarifications, this is how I would approach this very interesting problem:

I can borrow for 10 years from Avant at 2.3%
KBC is charging me 3%
The difference is 0.7%

On a mortgage of €488k that is €3,400

I am getting €11k cash back from KBC. That will take me just over 3 years to recover. And I will have a far cheaper mortgage for the following 7 years.

So borrowing from Avant is clear.

€[email protected]% = €14,600 a year interest

Borrow the €11k from Avant

€499k@ 2.3% = €11,500 a year interest

Other potential advantages of Avant
You can overpay by 10% a year, without penalty.

You can have your current account with any bank you choose.

It is very unlikely that there will be a break fee with Avant if you ever want to switch in the future. Even if there is, it will be capped at 2%.

With KBC, I don't know if they will calculate any future break fee based on today's money market rates or the money market rates when you first took out the fixed rate. If the latter, you would face another big break fee if you ever wanted to switch.

And the other huge advantage of Avant is that you are far less likely to have to switch when the 10 years is up.
 
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skrooge said:
I'm a little confused, are you saying if you keep the 10 year fix will KBC wave the break fee? If so then the 11k is to be factored in. If you have to pay it regardless then it's a sunk cost and shouldn't affect your future decision.

It's hard to offer a definitive answer as you're comparing two different rates over two terms. While the 10 year is obviously higher it does provide insurance against future rate increases (at a cost). How expensive that premium is really depends on where you think future rates will go and how sensitive your (future) finances might be to a rate increase. However, looking at the market and shorter fixes tend to be priced more competitively then longer term fixed rates.

Looking at the numbers: In the first 3 years you'd pay about €9,250 more in interest by fixing for 10 years. Interest rates would have to be about 3.6% in years 3-10 to make the 10 year worthwhile.

I know you're not interested in other providers but someone like Avant offer the best of both worlds.
Click to expand...

Hi,
The 11k Break Fee had to be paid regardless. However, if we draw down our new mortgage from KBC, they will refund us the 11k.
 
Brendan Burgess said:
This is the first mistake.
I understand that Avant is very efficient so you should be applying to them.

If you fix with KBC you will have to move anyway after three years as BoI charges existing customers very high rates.

So get the whole job done now.

Brendan
Click to expand...

I had a look at the Avant application process last night. While it is nothing out of the ordinary, it will still involve gathering payslips, salary certs, all of that stuff.

I don't get your point about having to switch in 3yrs; we would be on a fixed rate for 10yrs, not 3yrs. Even if it were 3yrs, are the BOI fixed rates not available to existing customers? This would indeed be a drawback.
 
Brendan Burgess said:
Can you clarify

1) How much was outstanding on your mortgage when you repaid it? Let's say it was €300k for example.

2) You are now borrowing €488k. Are you saying that you must borrow the entire €488k over 10 years at 2.99% to get €11k back?

3) I would have thought that the €300k was at 2.99% and the balance would be at their current rates. Ah, I see that their 10 year rate is 2.99% still.

4) Can you borrow the €300k over 10 years and the balance over 3 years?
Click to expand...

1) We had €285k remaining when we repaid it a month ago. Approx 25% of our loan was on a short term fixed rate with a negligible BFF. 75% fixed at 10yr rate of 2.99%.

2) A clarification having checked our Loan Offer - We will be borrowing €205,500 at the 10yr rate of 2.99% (note, we revert back to Day #1 of the 10yrs), and €283,500 will be borrowed on a 2yr fixed rate of 2.3%.

3) see above

4) see above


Given your previous response, i'm now a bit worried about the 2yr fixed portion if BOI's lowest rates are not available to existing customers. Or will i be regarded as a KBC customer when the 2yrs expire, and be entitled to BOI new customer rates?

The uncertainly around the future of the KBC current account discount (when KBC exit the market) is also a concern.
 
lledlledlled said:
I had a look at the Avant application process last night. While it is nothing out of the ordinary, it will still involve gathering payslips, salary certs, all of that stuff.
Click to expand...
My two cents on this point - even if it seems daunting (I guess you're under pressure with the house purchase), it's really at most an hour or two's work (spread out in chunks of 5 mins here and there over the course of a few days) to apply to another lender, like Avant. Maybe don't rule it out, as you could be talking about very significant differences in money over time, depending on your decision.
 
lledlledlled said:
Hi,
The 11k Break Fee had to be paid regardless. However, if we draw down our new mortgage from KBC, they will refund us the 11k.
Click to expand...

How about this, stay with KBC get the refund and immediately switch.

It will be a be a new fixed mortgage with KBC so the break fee will be calculated from today and will be a lot lower than 11k.
 
lledlledlled said:
i'm now a bit worried about the 2yr fixed portion if BOI's lowest rates are not available to existing customers.
Click to expand...

Check out BoI's rates. They are very high. They can get new business only by giving cash back.

They have a low rate for non-cash back customers, but for new customers only.
 
I know i'm probably coming across as lazy but it's much more work than 1-2 hours. It's chasing employers for Salary Certs (again), getting payslips together (which are probably in the bin by now - Avant requires most recent 3 payslips).

Also need 2 forms of Proof of Address per joint applicant. We've temporarily moved in with our respective parents so now have different addresses to each other, don't have utility bills in our names, etc.

It's doable if the figures say it is worthwhile, but it's not a quick exercise.
 
skrooge said:
How about this, stay with KBC get the refund and immediately switch.

It will be a be a new fixed mortgage with KBC so the break fee will be calculated from today and will be a lot lower than 11k.
Click to expand...

Is this true though? I assumed the Break Fee was highest on Day 1 of the loan, and reduces over time (assuming interest rates being equal)?
This solution sounds too good to be true.
 
lledlledlled said:
Is this true though? I assumed the Break Fee was highest on Day 1 of the loan, and reduces over time (assuming interest rates being equal)?
This solution sounds too good to be true.
Click to expand...
Break fee reflects the difference between the costs faced by the lender on the day the break fee is calculated and the day the mortgage was granted. So assuming I'm correct and the new mortgage is actually a new mortgage this should be the case.

The wrinkle will likely be that Avant probably won't touch you straight away without a track record with this mortgage. I'm not sure how long you have to be with your existing lender before they will accept your application but it is something to look into. Who knows if you explain your situation they might be ok with getting your across earlier than they might otherwise allow. Costs nothing to ask.
 
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I don't think that there is any reason for Avant to turn down a switcher?

A cash back lender might on the grounds that the person will switch again after the switch.

Brendan
 
skrooge said:
It will be a be a new fixed mortgage with KBC so the break fee will be calculated from today and will be a lot lower than 11k.
Click to expand...

Hi skrooge

This is probably true and it's a brilliant idea.

But I don't think you can be definitive about it.

10 year money market rates might rise between the time he draws down the mortgage and when he looks for a break fee.

KBC might look at getting it based on when he drew down the initial mortgage.

If he stays with KBC, he should look at it but I think the safer option is to apply for a mortgage now to Avant.

Brendan
 
A minor point worth noting, the broker fee for the Avant application is €295 up-front, whether or now we draw down a loan from them. If the probate is granted before i get approval from Avant (approval will be minimum 6 weeks according to broker), then we need to draw down from KBC anyway.
 
Just to note that my recent application to Avant took two weeks to AIP and no broker fee, FYI.
 
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