# Get out of fixed rate penalty?



## Daisyduck (20 Jan 2009)

I am six months into a 5 year fixed rate of 5.99% on a mortgage of €210,000.  My mortgage provider is IIB, and they have quoted me a penalty fee of €17,000 to change to variable rate.  Is there any way to avoid this?  If I change mortgage providor?  I know people in a similar situation at the moment but with different providors and their penalty is only €2,000, can there be such a difference?  

Any advice much appreciated.


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## Soarer (20 Jan 2009)

If you think about it, your 5 year fixed rate will make the bank approx. €63000 in interest over the 5 years.
You've paid off 6 months worth of interest, approx. €6300.

So if you think about it, you still owe them approx. €57000 in interest for the next 4.5 years, so you're not doing too bad getting out of it for €17000.

Still a lot of money though!


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## jquinn (20 Jan 2009)

Here's how IIB calculate the charge:
[broken link removed]

For Fixed Rate Homeloans: The fixed rate on a mortgage will be the fixed rate available on the day the loan cheque issues. Redemption, in whole or part, of the
fixed rate homeloan may give rise to a break funding fee charge calculated as follows: (Mortgage Balance) X (Break Funding Cost) X (Number of months to end
of fixed rate term ÷ 12). The break fund cost = (original fixed rate) less (current fixed rate on offer for the term equating to remaining term).

Current 5 year fixed from IIB is 5.49%
So:
210000*0.005*(55/12) = 
*[SIZE=+1]4[SIZE=-2] [/SIZE]812.5[/SIZE]*




I don't know where they got 17K from


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## Daisyduck (20 Jan 2009)

Thanks jquinn, that's really interesting.  I wasn't sure how it was calculated.  There is a big difference between €17k and €4812.50.  I wonder would it be worth considering a €4812.50 penalty.  I asked my broker to question the €17k but he hasn't gotten back to me on it at all


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## DerKaiser (20 Jan 2009)

You're current rate is 6%, typical 5 year rates are 4.2%.  This is a 1.8% difference over 4.5 years, an 8.1% difference in total or about €17k when applied to your mortgage.
If IIBs current 5 year fixed rate is 5.5% they're being a bit disingenuous as the penalty to move to this rate would be as calculated by jquinn above


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## Bronte (20 Jan 2009)

OP do you have the penalty fee in writing, you always need this in writing.  Also are you sure you will be eligible for a lower rate mortgage.


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## Daisyduck (20 Jan 2009)

No Bronte I didn't even think to ask for it in writing, when I rang and she said €17k, I think I nearly died of shock so I didn't think to ask.  Ask a stupid question but I don't get what you mean about being eligible for a lower rate mortgage?  If I could change to variable and pay a reasonable penalty, are there other reasons that would make me not eligable?


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## Lorz (20 Jan 2009)

I wonder would you be better off contacting IIB directly?  That penalty seems outrageous.  I know of 2 people who were in a fixed mortgage with PTSB and they didn't have to pay ANY penalty to change to variable!


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## Daisyduck (20 Jan 2009)

Hi Lorz, I did contact them directly and that was the figure they gave me.  I know I'm breaking a contract but I was keeping my business with them so €17k seems crazy to me.  I think maybe there might have been a cut-off or something.  How can one bank charge nothing or practically nothing and the other €17k?


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## j26 (21 Jan 2009)

How about suggesting to them that if you do break out of the fixed rate you will take your business elsewhere unless that 17k is reduced?


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## DerKaiser (21 Jan 2009)

Daisyduck said:


> Look's like I have no other option but to do the same Jimbobman, oh well, i'll do it to, it will probably take that long for me to lose the bitterness I have now so I'll go through with it


 
Sorry to be bringing in the reality check here but you have nothing to be bitter about.  Fixed means fixed, it's a financial contract that you have to honour and the terms were clearly stated at the outset.

You can argue all you like that you didn't understand the contract and it was too complex but you shouldn't sign contracts that important without understanding the most important aspects.

Common sense will tell you that you can't just switch between fixed and variable whenever it suits you.  

Say you were allowed get out of your deal with no penalty and you fixed at 4% for 5 years with another bank.  Would you be happy for them to move you to variable if interest rates shot up to 8% next year?


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## Daisyduck (21 Jan 2009)

I have common sense, and I never once said I "didn't understand" the contract.  When you sign the contract it says "a penalty" obviously they can't forcast how much so no party involved could have guessed how much/what would happened at the time.

I remember back in August being advised (and yes my common sense told me to seek more than one professional opinion), to fix, I even remember it being a panic to get everything signed because the interest rate would have changed to 6.0% + in a matter of days.

I also never once said that would "could just switch" from one fixed to variable. I questioned was there any way around such a high penalty and I questioned how the penalties can vary so massively between one institution and another.

I am perfectly entitled to think "God I'm raging - ah if only I had known", -it's human nature.

But I thank you for the lecture.


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## DerKaiser (21 Jan 2009)

Daisyduck said:


> I remember back in August being advised (and yes my common sense told me to seek more than one professional opinion), to fix, I even remember it being a panic to get everything signed because the interest rate would have changed to 6.0% + in a matter of days.


Sorry for being a bit blunt.  The reality is that interest rates have fallen and they are entitled to charge you for the difference between the original rate and the current market rate over the remaining term of the contract.  Letting you off the hook would be costing their shareholders another €17k.

People have lost the run of themselves looking for people to blame, more often than not apportioning blame in the wrong


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## Petal (21 Jan 2009)

Daisyduck, why don't you get on to your lender and ask them to give you that figure in writing and also to supply you with the underlying calculations. Then you can double-check how they arrived at this. Maybe they made a mistake, maybe they didn't, but once you know how it was calculated you can check against your contract and see if they've done it correctly, and if they have then your next best thing is to go onto a mortgage calculator and work out if it'd be worth forking out 17Grand, mind you, you'd have to do a lot of speculating on how the interest rates will go over the next few years.


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## DerKaiser (21 Jan 2009)

Daisyduck said:


> If you read back through most of my comments /questions - most are in relation to the difference in penalties offered between different istitutions - a fair comment no matter the situation I would have thought.


 
Definitely re-check the figures and haggle for all you're worth.  

Some people are on fixed deals that roll over to trackers.  Because these trackers are now seen as costly to the bank they often allow people to break the fixed rate at no penalty in order to get rid of the tracker promise.

I'm not on any high horse here.  The thread seemed to have reached a consensus that the bank was being unreasonable in enforcing a contract, I don't think this was a fair point.


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## Nalah (21 Jan 2009)

obviously a contract is a contract and all that..., but I'm considering making a lump payment off my FA Fixed Mortgage. If they try to impose a penalty I might point out that since I'm currently in negative equity they should be damn glad to get their book in order. Any thoughts on this strategy?


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## DerKaiser (21 Jan 2009)

Now that sounds like an angle!  Get them worried about the capital and they won't mind losing a bit of interest.


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## mallow (21 Jan 2009)

You could also mention that as an Irish taxpayer you now effectively own the banks thanks in large part to their incompetence.... Not a softly softly negotiating tactic I'll grant you, but on the off chance you do hit the old brick wall of 'a contract is a contract' it could be amusing to point out the irony.


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## Nalah (21 Jan 2009)

Well FA (First Active) is owned by RBS so Johnny Sasnach is underwriting it ;-)... but if the drone in the call centre doesn't see it that way there are a bunch of directors listed at the bottom of all correspondence. I'm sure a letter asking them about how much of their Basel II Core Weighted Capital they have allocated to my shoebox gaff would provoke an interesting response.


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## fuzzyduc (22 Jan 2009)

I am in the same boat DaisyDuck, Fixed with IIB / KBC at 5.99% until 2013.
My Break Fee is currently at a petite figure of €23,000.  I'd love to be sitting on a lump of money like that but there's no way there is a possibility of paying it although it rises steadily as rates drop. 
I've had three discussions with IIB customer care staff. One discussion was very interesting. I was given an option to break for €18,000 at the time. I was told there was potential to wrap it onto the mortgage, extend the years and pay it off over 35 years again. (they mentioned the rules on this had already changed to being allowed only add €1,500 onto the mortgage and paying the remainder from personal sources; it was suggested this could be over-looked given difficulty with payments).
Also, when they discussed my case with their colleague, there was additional tentative advice to wait a few months. They suggested there may be movement on the break funding fee rule in the coming months due to the number of people having trouble with repayments on the higher rate. This was not a definite.  But the discussion ended by weighing up whether I risk loosing the €18,000 by breaking now and finding the rule changing OR waiting for the rule to change with no success and left looking at a higher breaking fee in the future. I was left with 5 days fix on that fee cost to decide what to do.

In another discussion I had with a more senior IIB advisor, I queried this suggestion. They denied this was a possibility. 
It could be nothing.... and lets face it i'm gladly grasping at straws.....
but I did think it was interesting.

For now... I stay indoors saving for the next month because either way I ain't got 23 grand!


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## PaddyW (22 Jan 2009)

No smoke without fire maybe? That would be interesting if they did change that rule.


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## mrsg09 (22 Jan 2009)

fuzzy duck, 

would you not be worried that if things turned around in 2010 or so that interest rates would rapidly increase again and youd be back to square one if you were on variable?

I know if i were in that situation thats what I would be most concerned about


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## mrsg09 (22 Jan 2009)

daisyduck

I am not going to read back over your previous posts as suggested.

I am interested though that you said you took out your morgage 6 months ago and fixed at 5.99% and were not 'delighted' with it

i also took out a mortgage 6 months ago and went for a tracker. did you not have the option then?


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## Daisyduck (22 Jan 2009)

No Mrsg09 a tracker wasn't an option for us, if only it were!  oh well


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## fuzzyduc (22 Jan 2009)

> would you not be worried that if things turned around in 2010 or so that interest rates would rapidly increase again and youd be back to square one if you were on variable?
> 
> I know if i were in that situation that's what I would be most concerned about


yes I agree. I fixed it for the long haul because I knew it would dip but then maybe over the years if it shot up again I might even out the damage.  On the other hand, back on variable there'd always be the option to fix again I guess at a more comfortable lower rate.

My problem is broader than that now. I have been on interest only repayments up until next christmas because I've been investing money renovating the property. Most people experienced the sudden rise €100 nearly a month raise in rates over such a short time, followed with a choice to fix. I had 1 day to decide and get the instruction verified.... I rushed it in. I stupidly never even considered what the annuity repayments at this rate would be! Of course its a sum which would mean I'd have to find a different higher pay check!

Since I've lost my lodger to unemployment, and i am self employed but the industry has been very quiet.

I don't think anyone could have predicted the sudden nature of the change in earning potential. 

All this bundled together has me investigating possibilities before next christmas arrives!  Its a long time in economics so hopefully things will change. 
I will definitely not be paying €23,000 for nothing. It would kill me to hand over that sort of money instead of investing it in the property for further extension or improvement.

Anyhow its interesting that there's wee talk of a change in fee.....It'd be great while times are really tough to put pressure on, to see if there is a possibility of change. 
I'm not very versed on this kind of thing. I don't know who the banks, in this case IIB has bought my fixed interest off.... who gets this break fee??


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## David_Dublin (22 Jan 2009)

I have a split mortgage with AIB, half on tracker, half on fixed @ 5.25 for 3 or 5 years from last July (cant remember if it is 3 or 5 years). They have a genius rule - they can only inform you of the costs of breaking fixed mortgage contract by post, and the offer is only valid on the day that the item is requested. So, technically, unless you have same day post you cant do it. 

I wanted to find out about the cost of moving my fixed to variable (or ideally tracker, but I doubt they will be having any of that). When I rang on Monday they said they'd post it out. When I rang back on Wednesday to find out where it is, they said they are dealing with a large number of such requests and would get to it over the next few days. I'd love to know how many are applying. 

Anyone here do this with AIB? Would love to know if they are more reasonable than other institutions.


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## Grace80 (22 Jan 2009)

I broke out of my AIB fixed rate just before Xmas. My fee was calculated at €2200. I agree with your frustrations with their "post / in writing only" rule - it ended up taking a few weeks to get it sorted. Glad I did it now though


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## mrsg09 (23 Jan 2009)

David Dublin

Surely you could go in and collect the letter? then sign on the spot?


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## Natt (23 Jan 2009)

In a similar boat to many people on this thread. I fixed at 5.8% and am 8mths into the life sentence. I enquired with my my lender and was informed the penalty would be €24,000 to switch to variable. Unsurprisingly my response pretty much went...EH NO!

Trying not to get to bitter about it and taking solace in that; 

If I were applying for my mortgage now it would be likely that I would either be refused or at best not offered the amount I needed.
I know there is another 1 or 2 more drops expected in the interests rates before the end of the year but it can only go so low and then the only way is up...maybe very quickly.
For all of us pining for the variable at the moment we could find ourselves 6/12/18 months down the line begging for the fixed.
In my case anyways...at least I know for the next 4ish years what I need to be budgeting.
This is what I keep telling myself anyways...helps a little....


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## tracy3135 (14 Apr 2009)

My mortgage is crippling us.  We owe €610,000 and we are stuck in a fixed rate.  At the moment we are struggling to pay this as the government have taken extra €1000 per month off us in wage cuts.  We were quoted €39,000 to buy out.  Absolutely crazy.  I will never again stay loyal to the EBS as they will be the cause of us losing our dream house.  We only built it 1 and half years ago and we now have to consider putting on the market which in this current climate will not yield us enough to pay our mortgage and start again.  I am heartbroken cause we are not extravagant people at all.  No fancy hols or cars, just a nice home for a family but now we have been left stranded


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## dubinamerica (16 Jul 2009)

in the formula posted earlier for KBC , the calculation of the break fund fee was outlined.  I'm trying to determine how that break funding rate is determined and the document earlier in the thread shows the following example 

b) where wholesale rate decreases over term of loan​Wholesale rate at date of funding: 8%
Wholesale rate at switching date or redemption date: 7%
Break funding rate 1%​Break funding fee (per​​​​1,000.00)
Formula: mortgage balance x break funding rate x (unexpired fixed term divided by 12)​
Example: 1,000.00 x 1% x 6 months /12 = 5.00 per 1,000.00

In the case were a person is breaking out of a 5 year fixed (say APR 4.89) with about 2 years remaining, what "wholesale rate at switching date" is used - a wholesale rate for 2 years fixed (or is it a rate for 5 years) ?   Does anyone know where to find these rates on any given day?


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## Nalah (20 Jul 2010)

Nalah said:


> obviously a contract is a contract and all that..., but I'm considering making a lump payment off my FA Fixed Mortgage. If they try to impose a penalty I might point out that since I'm currently in negative equity they should be damn glad to get their book in order. Any thoughts on this strategy?




Brendan asked me how I got on with this:

After a lot of calling and talking to junior staff who  didn't know anything I was eventually told by First Active that I could pay 5% of original amount every year without penalty. I didn't proceed for various reasons so I don't know if that was strictly per calendar year or once every 12 months


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