Switching to Overpay Mortgage

E

Essjay

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Currently with UB on a 3.6% fixed with 19 months remaining. 22 years left on the term with around €170,000 outstanding. Breakage fee in November 2018 was quoted at €1,500.

Luckily we are in a position where we can begin to overpay on the mortgage. No other debt apart from perhaps less than €1,000 on credit cards.

Looking around, KBC are offering a 1 year fixed at 2.5% (less than 50% LTV) if you open a current account with them. If I’m correct the 1.1% difference in rates equates to a €2,960 over the 19 months. Add in the €3,000 cash for switching and it’s €5,960 - €1,500 (breakage fee) = €4,460. Is that correct (of course not including legal fees) for the short term fixed rate we’re in?

Looking at the bigger picture, the mortgage would be €95 less a month and perhaps supplement that by €405 to make an even €500pm overpayment. Still take out the 22 year term for €170k.

All that into consideration could reduce the term by 10 years saving around €45,000 in interest.

Do those numbers look correct or have I gone astray anywhere?
 
On a KBC fixed rate you can overpay 10% of the balance during the fixed rate period without paying a break fee. Also have you considered the legal fees for the switch? Can be up to 1200 but you can definitely get it for less. Valuation fees too. Also if your credit card debt is costing you inteeint, I'd clear that immediately.
 
Hi SJ

It is wrong to compare your current deal with the KBC deal.

Step 1: work out if you should break or not.

So if you break now, you can avail of the Ulster Bank rate of 2.3% fixed for 2 years.
So should you break?
So you save 1.3% interest on €170,000 or €2,210
As you will recover the break fee of €1,500 in about 8 months, you should do so.

Step 2: Compare the Ulster Bank rate of 2.3% with the KBC deal
So KBC is a bit dearer - 0.2% or €340 a year
You will get €3,000 cash back less about €1,500 legal costs of switching.

So you will be getting €1,500 up front but it will cost you an extra €340 a year in interest.

Of course, at the end of the two year fixed, it's possible that KBC will be cheaper than Ulster Bank - no one knows, but both lenders do try to have competitive deals.

So I would say that your gain would be about €1,200.

You can decide if that is worth it or not.

Brendan
 
Thanks Brendan.

You seem to be comparing the savings of my 3.6% vs 2.3% UB rates over 12 months rather than the 19 remaining in the contract. Is there any reason to do that (ie. am I missing something obvious when looking at the 19 months)?
 
The 19 months is irrelevant.
Break out of your fixed rate tomorrow as it's worth it.

Now what should you be comparing? The UB 2 year fixed rate with the KBC 2 year fixed rate?

I tend to look at the annual savings or extra annual costs. But there is no right answer. You can switch to KBC variable and then switch again, so it doesn't really matter which you use.

Brendan
 
Fair point, Thanks. I'll give UB a ring on Tuesday to get a new breakage quote.
 
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