worth it to break out and re-fix?

J

jodyanne

Guest
I would really appreciate any thoughts on this, even if it's just to clarify what we need to consider.

We are currently in a fixed 5.45% with AIB until end Sep 2011. We would like to re-fix for another 3 or 5 years at that stage as we like the security but given all the issues with fixed rates recently, we're worried that there won't be a reasonable fixed rate with AIB come September.

So we're considering paying the breakage cost to come out of this fixed rate and immediately re-fixing at their current fixed rates (3.89% for 3yr and 4.39% for 5 year). And we're trying to figure out if it's worth it for us!

Cost to break out: 2,404.98
Rough monthly savings between now and September on our monthly repayments: about 600 if we opt for 5yr and about 1000 if we opt for 3yr
So net cost to us for the security of re-fixing now: Between 1,400 and 1,800

What do you think? We could cover the breakage with savings but is it worth it? How can I figure out if this would leave us better or worse off?

Would really appreciate any thoughts, thank you!
 
People would need to know the remaining balance of the mortgage and remaining term in yrs before they could give a more detailed answer.
 
thank you nice one.

Current balance is 260,368

32 years left when we exit the fixed in Sep.
 
Are they charging you break out costs because you are coming off a higher fixed rate to a lower one?

I rang AIB the other day as we are currently in our last year of a 2.8% fixed rate and want to do similar (fear by the time we come off next Feb rates will have rocketed)

They indicated that they may not charge a break out fee as we will be moving from 2.8% to 3.89% or 4.39%, although I am waiting for this to be confirmed in writing
 
hi rustbucket

we're on quite a high fixed rate (5.45%) so yep, they're charging us for breaking out to a lower rate. However, I've been working through it and it doesn't seem like they're calculating the breakage cost fairly.

As far as I can see, breakage cost is supposed to be: (balance left on loan) x (time in years left on fixed rate deal) x (difference between the deal rate and the rate being switched to)

I think they're actually calculating it as if we were going to switch to the current variable rate for the next 7 months (which is 3.49%) whereas we intend to be on the 5yr fixed of 4.39%. So they'll be getting more money from us so the breakage cost shouldn't be so high.

My calculations are:
260,368 x (7/12) x (5.45%-4.39%) = 1,609
But they've come up with 2,404!

So maybe that's my first thing, I should get back in touch with them tomorrow and establish their basis for the breakage cost. If it went down to 1,609 and then we were saving 600 over the next 7 months, the net cost would be 1K and that would be much more attractive.

If anyone with any knowledge of this stuff see flaws in my workings, please let me know, thank you!
 
jodyanne,

If you have 32 years left can we assume it's a fairly new mortgage?

If so make sure that it's not written into your contract that you'll switch to a tracker at the end of your fixed term. It was in ours with PTSB(which we didn't realise when we broke out of our fixed rate to go onto a variable, grr)
 
spoke to aib this morning and they said the breakage cost is based on the difference between our fixed rate and their current 1 year fixed which is 3.59%.

She said it makes no difference that we're going to be paying 4.89% if we switch to the 5yr fixed as that's a separate transaction which they will finance separately. The breakage cost is to allow them to sell on the remainder of our fixed rate. I understand in a general sense but don't know enough to know if i have any leeway.

Is there anyone that you can go to to get good advice on this stuff? I don't trust the bank to tell us all the options, especially if it's to their detriment!

Shoppergal - it is a new mortage and moving on to a tracker at end is an option but that rate isn't specified in the contract so I can only presume they will set it so much above the ECB that it's not worth going for.
 
Hi Jodyanne,
We were in the same situation, 3 yr fixed @ 5.45% due to finish up in july this summer but decided to pay the breakage cost of approx e2200 and fixed for 5 years at 4.39%. we were worried how high the fixed rates might climb . didnt realise at the time that theres a 10yr fixed rate for 5.2% - didnt see it on their website but I think its available
 
Hi barbie

Well it's interesting now to hear that you've done what we're considering. It's a hard one to swallow, paying them over all that money, isn't it?! But I think we may well go for it too.

Hubby is away at the minute and we need to discuss it properly before jumping in so I reckon it will be end of March by the time we can move on it - hopefully no massive hikes in fixed rates before then!

In their letter to us, there is indeed a 10yr fixed option of 5.2% - so do you feel you would have opted for that if you'd been aware of it?
 
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