# Case Study: Internal Mortgage Switch UB



## HollowKnight (16 Jan 2020)

*Lender: *UB
*Amount of mortgage balance outstanding: *€303k
*Date you fixed: *November 2018
*Period for which you fixed: *4 years
*Fixed rate: *2.6
*Term left: 3*yrs
*Breakage fee: *€2500 (worked out using ICE report data)

Approx interest cost in next 3years (whilst on 2.6%) = €23.6k
Approx Balance after 3years = €276k

If I switch to the new 2.2% rate
Approx interest cost in next 3years = €20k
Approx Balance after 3years = €273k

It would appear it makes sense to switch. Am I missing something?
There may be a need to have the house revalued but it would still make sense to switch even with this cost.

If I don't do this somewhat quickly, I will be unable to (as the balance will fall below the €300k for the new low rate in April).

Thoughts appreciated.


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## RedOnion (16 Jan 2020)

I did some back of the envelope (well, napkin) calcs earlier, and because UB cap the break fee at 6 months interest, even if a customer had the max break fee on any existing rate this is worth looking at.

I need to look a bit more at real examples, so I might take a look at yours tomorrow.


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## nest egg (16 Jan 2020)

I'm interested in this as well, may I ask what ICE report data is, and how you used it to work out the breakage fee?


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## HollowKnight (16 Jan 2020)

mojoask said:


> I'm interested in this as well, may I ask what ICE report data is, and how you used it to work out the breakage fee?








						ICE Report Center - Data
					






					www.theice.com
				




I wouldn't have known about this but for this webpage. And I'm not really learned enough to explain what the figures are but I've an idea of how to use them. 
You find the rate on the date you fixed and the potential new rate. Ulster Bank has a formula on their website to work out the break fee.


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## RedOnion (17 Jan 2020)

@mojoask 
Do you want to post your info, and I'll do it as a 2nd case study?
I'll estimate the break fee if you include the following:
*Amount of mortgage balance outstanding: 
Date you fixed: 
Period for which you fixed: 
Fixed rate: 
End date of fixed:* (if possible - UB don't fix for exactly 4 years, it's always a few months extra)


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## RedOnion (17 Jan 2020)

@HollowKnight 
Was yours fixed for 4 years in Nov 2018? So 3 years left?
I'm  coming up with a much higher break fee if that's the case.


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## HollowKnight (17 Jan 2020)

RedOnion said:


> @HollowKnight
> Was yours fixed for 4 years in Nov 2018? So 3 years left?
> I'm  coming up with a much higher break fee if that's the case.


Late November. Yes, 29/11 I think. With it expiring September 2022.
Sorry typo in op, edited to reflect approx time left is 3 years.


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## nest egg (17 Jan 2020)

RedOnion said:


> @mojoask
> Do you want to post your info, and I'll do it as a 2nd case study?
> I'll estimate the break fee if you include the following:
> *Amount of mortgage balance outstanding:
> ...



Very kind of you, I'd be highly surprised if it's advantageous, based on what I've read above!

*Amount of mortgage balance outstanding: 430k
Date you fixed: Feb 2019
Period for which you fixed: 4 yrs
Fixed rate: 2.6
End date of fixed: Mar 2023*


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## RedOnion (17 Jan 2020)

HollowKnight said:


> Late November. Yes, 29/11 I think. With it expiring September 2022.


I'm coming up with a break fee of c 3,400?
4 year rate in Nov 2018 Vs 3 year rate now. There's about 0.41% difference (because rate went negative). Your break fee almost exactly matches the amount you'd save.

I think?


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## RedOnion (17 Jan 2020)

mojoask said:


> Very kind of you, I'd be highly surprised if it's advantageous, based on what I've read above!
> 
> *Amount of mortgage balance outstanding: 430k
> Date you fixed: Feb 2019
> ...


Break fee approx 3,740
Interest savings 5,440


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## HollowKnight (17 Jan 2020)

RedOnion said:


> I'm coming up with a break fee of c 3,400?
> 4 year rate in Nov 2018 Vs 3 year rate now. There's about 0.41% difference (because rate went negative). Your break fee almost exactly matches the amount you'd save.
> 
> I think?


I thought it changed from 0.14 to -0.129. I'll ring them Monday and ask to send on their figure anyway.


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## RedOnion (17 Jan 2020)

@HollowKnight 
Can you post the link you're using for rates from The ICE? Is it report 180?


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## HollowKnight (17 Jan 2020)

On mobile and struggling to link, the figure I used came from EUR series 1100. I'm guessing that's incorrect now. @RedOnion


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## RedOnion (17 Jan 2020)

@HollowKnight 
No, that's the same one I use. 
I might be doing something silly here. I'll have a proper look later.


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## RedOnion (17 Jan 2020)

Right, crude calcs, but for each of the main existing UB rates, I've calculated below the minimum term it would take to 'save' the maximum break fee for each rate.
If your break fee is less than the max (6 months interest), your payback will be shorter.

This doesn't factor in the benefits of have a lower rate fixed for longer. 

So for example if you've 4 years left on a 2.75% rate, you'll definitely save money by breaking and refixing.

2.5% 4.2 years
2.6% 3.25 years
2.75% 2.5 years
2.99% 1.9 years
3.14% 1.7 years


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## _ripped_off (17 Jan 2020)

Can I jump on the band wagon here and see if I’m calculating the break fee correctly. I’d have to find capital to get into the 80% LTV but I’d like to be able to do these break fee calcs myself to keep an eye on it.
I’m currently calculating a break fee of circa €3500 and interest savings of €5k 

Amount of mortgage balance outstanding: 347k
Date you fixed: 11 Sept 2019
Period for which you fixed: 4 yrs
Fixed rate: 2.6
End date of fixed: 30 Sept 2023


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## RedOnion (17 Jan 2020)

@_ripped_off
Your break fee should be currently a big fat ZERO.


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## nest egg (17 Jan 2020)

RedOnion said:


> Break fee approx 3,740
> Interest savings 5,440



I stand corrected.  Do you mind sharing the calculation?


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## RedOnion (17 Jan 2020)

@mojoask 
I'll share details later when I get to a proper computer


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## _ripped_off (17 Jan 2020)

RedOnion said:


> @_ripped_off
> Your break fee should be currently a big fat ZERO.


O god I’m worse at Maths than I thought! You’d think after my experience last year I’d have my head around the break fee thing by now!
No rush but if you could share how your arriving at zero I’d be most grateful (again!)


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## BourbonWithIce (17 Jan 2020)

Hi, long time reader, first time poster. Could I ask to calculate the break fee for me please RedOnion or if it's not too much trouble, post a dummies guide to calculating it myself. I and many other readers would be very grateful. Teach a man to fish and feed him for life and all that lol

Can I message you my details? Do u need exact date of fixing or just the month?


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## RedOnion (17 Jan 2020)

Hi, 
The following thread (hopefully) explains how break fees are calculated.





						Key Post - Understanding Fixed Rates breakage costs
					

Moderator's note: for anybody who is thinking of switching their mortgage (or re-fixing with their current lender), consider posting your mortgage details in the switcher thread (in the format shown in the first post). Someone will calculate an estimate of the break fee (if any) and of the...



					www.askaboutmoney.com
				




If you tell me when you fixed (month should be close enough to estimate), and for how long, I'll estimate the break fee. If you don't want to post your balance I'll calculate it for 100k, and you can multiply it out yourself.
I prefer to post publicly except in specific scenarios. I make mistakes, and by posting public others can correct me.


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## BourbonWithIce (17 Jan 2020)

Fixed October 2019 for 5 years @ 2.8% for 420k.

Thanks for the above, interesting reading.

Am I correct in saying the break fee is negative (i.e. zero)


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## RedOnion (17 Jan 2020)

BourbonWithIce said:


> Am I correct in saying the break fee is negative (i.e. zero)


Exactly.


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## _ripped_off (17 Jan 2020)

RedOnion said:


> Hi,
> The following thread (hopefully) explains how break fees are calculated.
> 
> 
> ...


Thanks Red, I’ve reviewed this myself and now see why you advised zero for my fee. I’ll be eagerly waiting to see what Ulster Bank themselves calculate.


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## Blackrock1 (17 Jan 2020)

Hi RedOnion

Would you mind assisting me also (and if you can explain how id do it myself)

Current balance 461k
Remaining term 18yrs 4 months
Fixed at 2.5% (ending 31/3/2023) on 28 March 2018

looking at the new 2.2% rate but maybe its not worth while?


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## RedOnion (17 Jan 2020)

@Blackrock1 
5 year interbank rate when you fixed: 0.36%
3 year rate now (remaining term): -0.26%
Break fee 9,020
That'd be capped at 5,760 (6 months interest).

Interest savings c. 4,370

So it'd cost you 1,400 (but would be fixed at 2.2% for an extra year)


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## Blackrock1 (17 Jan 2020)

RedOnion said:


> @Blackrock1
> 5 year interbank rate when you fixed: 0.36%
> 3 year rate now (remaining term): -0.26%
> Break fee 9,020
> ...



thank you unlikely to be worth while then !


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## BourbonWithIce (17 Jan 2020)

RedOnion said:


> Exactly.



The break fee for me is likely to stay negative (i.e. zero) until such time as the interbank rates rise is that correct? And that's unlikely in the immediate future ceteris paribus?


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## RedOnion (17 Jan 2020)

BourbonWithIce said:


> The break fee for me is likely to stay negative (i.e. zero) until such time as the interbank rates rise is that correct? And that's unlikely in the immediate future ceteris paribus?


The opposite. It'll stay zero until interbank rates drop.
They've risen slightly since you fixed, which is why it's zero.

It gets confusing, because we're looking at negative rates here.


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## RedOnion (17 Jan 2020)

mojoask said:


> I stand corrected.  Do you mind sharing the calculation?



I picked a different start date, and ended up with a slightly different estimate break fee here.  You'll need the exact figure from them to make a decision.


Balance430000​Interbank Rate at beginning0.03%​4 yearsInterbank rate now-0.26%​3 yearsDifference0.28%​Fixed Term remaining38​monthsBreak fee estimate3,867​Balance * rate Diff * remaining months/12Interest Savings:Current Rate2.60%​New Rate2.20%​Difference0.40%​5,446.67​


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## RedOnion (17 Jan 2020)

If I missed any questions above, please tag me again and I'll take a look.


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## RedOnion (17 Jan 2020)

HollowKnight said:


> I thought it changed from 0.14 to -0.129. I'll ring them Monday and ask to send on their figure anyway.



Here's what I was coming up with for you.  I think we have the same starting rate, but a very different number for the current interbank 3 year rate?


Balance430000​Interbank Rate at beginning0.140%​4 yearsInterbank rate now-0.258%​3 yearsDifference0.398%​Fixed Term remaining38​monthsBreak fee estimate5,419​Balance * rate Diff * remaining months/12Interest Savings:Current Rate2.60%​New Rate2.20%​Difference0.40%​5,447​


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## HollowKnight (17 Jan 2020)

RedOnion said:


> Here's what I was coming up with for you.  I think we have the same starting rate, but a very different number for the current interbank 3 year rate?
> 
> 
> Balance430000​Interbank Rate at beginning0.140%​4 yearsInterbank rate now-0.258%​3 yearsDifference0.398%​Fixed Term remaining38​monthsBreak fee estimate5,419​Balance * rate Diff * remaining months/12Interest Savings:Current Rate2.60%​New Rate2.20%​Difference0.40%​5,447​


My balance is 303000. 
And the new UB rate is for 5 years, so do you not use today's 5 year rate?


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## RedOnion (17 Jan 2020)

HollowKnight said:


> And the new UB rate is for 5 years, so do you not use today's 5 year rate?


Ah, I see now what you did. I should have spotted earlier.

The new rate has nothing to do with the break fee. You've 3 years left on the fixed rate, so it's the 3 year rate today that you use. It's the same break fee whether you were repaying or fixing again.

Sorry - used another posters balance, but it shows your break fee is almost identical to the savings (it'll be slightly different in reality as the balance is reducing).


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## BourbonWithIce (17 Jan 2020)

Does the same apply to other banks i.e. PTSB, AIB, EBS etc?


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## HollowKnight (17 Jan 2020)

BourbonWithIce said:


> Does the same apply to other banks i.e. PTSB, AIB, EBS etc?


They each have a different way of calculating the break fee. And AFAIK, only Ulster Bank cap it at 6 months interest.


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## HollowKnight (17 Jan 2020)

RedOnion said:


> Ah, I see now what you did. I should have spotted earlier.
> 
> The new rate has nothing to do with the break fee. You've 3 years left on the fixed rate, so it's the 3 year rate today that you use. It's the same break fee whether you were repaying or fixing again.
> 
> Sorry - used another posters balance, but it shows your break fee is almost identical to the savings (it'll be slightly different in reality as the balance is reducing).


Thanks for this, I understand it better now.


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## RedOnion (18 Jan 2020)

BourbonWithIce said:


> Does the same apply to other banks i.e. PTSB, AIB, EBS etc?


As @HollowKnight mentioned, they all have slight nuances. However, the basic calculation using interbank rates is there for all of them.
UB cap the break fee at 6 months interest.
AIB do a 2nd calculation based on their own mortgage rates, and use the lowest result.
Nothing significant about the others. I think there's a table in the key post I linked earlier with the terms of each bank.


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## _ripped_off (24 Jan 2020)

RedOnion said:


> @_ripped_off
> Your break fee should be currently a big fat ZERO.


So I just rang UB, spot on Red the breakage fee is zero! It’s lost in the post somewhere so only valid until Tuesday 28th.
However to avail of the 2.2% we need to clear down some of the principal to get to 80% ltv so just need to convince himself that would be a good use of savings!


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## RedOnion (24 Jan 2020)

_ripped_off said:


> just need to convince himself that would be a good use of savings!


Start by saying you want to move back to AIB!   

Break fee will stay zero for you unless interbank rates drop a bit.

I'd be happy to have a look at numbers / savings for you if you drop me a PM.


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## _ripped_off (24 Jan 2020)

Ha I’d be divorced if I even mention AIB.

I can’t seem to open a PM and didn’t want to be posting on an old on. I’ll throw the figures here might be of use to someone else.

Current Mortgage: 347k fixed at 2.6% until 30/9/23
Value of house: 425k so LTV is 81.2%
Need to pay 7K in principal to get to 80% LTV.
7k is in savings but not earning anywhere near 2.2%


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## RedOnion (24 Jan 2020)

@_ripped_off 
7k off balance. 
You'll save 5,780 interest in the next 45 months. Equates to 22% return per annum on your 7k, after tax.
Even if you borrow the 7k on your credit card you'll break even.


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## _ripped_off (24 Jan 2020)

22% return should be big enough to convince himself! Thanks again Red!


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## _ripped_off (29 Jan 2020)

Just for the sake of completeness we got the breakage fee quote in the post today one day after it expires 
Despite reds convincing returns calculated himself reminded me that our kitchen is on borrowed time and do we really want to be borrowing at 6 or 7% to redo that.
So for now I’ll have to hope that house prices remain stable and we will be into 80% LTV by this time next year, interbank rates don’t fall and this product or better is still available!


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## CaomhínB (18 Feb 2020)

Hi all,

Can I please ask anyone here who knows to clarify about the break funding fee (BFF) for a bank.
*Amount of mortgage balance fixed* = 173,000
*Date fixed* = 18th Jan 2019
*Period of time fixed* = 5years
*Fixed rate* = 2.6%

I requested a BFF on Oct 9th 2019 and while I received a quote over the phone, at the time I requested a breakdown of the figure which I have only received the today (18th Feb).
Can I please get clarification from the formula that’s used, where T = period of time in months (see picture attached) - yet they use days on the calculation instead of months?  Is this a typo?.....I have waited since October for this breakdown and I was informed in December that they introduced a new system and I was the first time that a BFF was requested and that it could not Be sent out until the wording/format etc of their correspondence is signed off on!  If this is a typo it’s a big mistake, if not a typo I’m being over charged by my calculations.[broken link removed]

I have been quoted a fee of €3,556 to breakout, but that is using T = period of time in days and not period of time in months.  If I use T = period of time in months my own calculations are coming in at €116.  Can anyone please advise.

The values for W = .16%
The value form M = -.35%

Thanks
CB


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## RedOnion (18 Feb 2020)

CaomhínB said:


> Hi all,
> 
> Can I please ask anyone here who knows to clarify about the break funding fee (BFF) for a bank.
> *Amount of mortgage balance fixed* = 173,000
> ...


Interesting - there's a wording error in their documentation. It's an error, but you're absolutely correct in what you say.


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## nephster (25 Feb 2020)

Hi @RedOnion, could I trouble you to do your magic on the below? Requested the info from UB yesterday and would be happy to compare what they say to your estimate...
*Amount of mortgage balance outstanding: *333312
*Date you fixed: *25-07-2019
*Period for which you fixed: *4 years
*Fixed rate: *2.6
*End date of fixed:* 30-09-2023

If the rate at fixing minus the rate now (both minus figures) is a negative figure itself, does that imply the break fee is zero?


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## RedOnion (25 Feb 2020)

nephster said:


> If the rate at fixing minus the rate now (both minus figures) is a negative figure itself, does that imply the break fee is zero?


Hi, yes exactly. Your break fee should be zero.

There's a bit of jitters in the market at the moment, and a flight to low risk assets has pushed rates down in the last week, but they are still a few basis points higher than when you fixed.


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## nephster (25 Feb 2020)

RedOnion said:


> Hi, yes exactly. Your break fee should be zero.
> 
> There's a bit of jitters in the market at the moment, and a flight to low risk assets has pushed rates down in the last week, but they are still a few basis points higher than when you fixed.


Fabulous, looking forward to the letter from the bank now which is a bit of a novelty. Thanks a mill!

EDIT: So exactly as predicted by @RedOnion, break fee is zero. Haven't received that letter yet, but they were able to tell me this over the phone as the letter had been generated, and they accepted that I want to break. As others have said this figure is only valid for a very short amount of time (sounds like 10 days from when it is generated).
Now waiting for the rates letter to arrive so I can sign and return it within that period! They won't email it, annoyingly.


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## Protocol (26 Dec 2020)

I am trying to do my own calculations, based on the great work done earlier by others.

Amount of mortgage balance outstanding: €150k, December 2020
Lender: UB
Date you fixed:           10-Dec-2018
Period for which you fixed:    4 years
Fixed rate:    2.60%
Fixed until 31.03.2023

Note that the fixed period is actually more like 4y 4m.  So I am roughly half way through the fixed rate period.

I am using the formula:

*B = (W - M) x T / 12 x A, where:*

B = The Break Funding Fee
W = The Wholesale Rate Prevailing at the date of the existing fixed rate applying to the loan was set
M = The Wholesale Rate prevailing at the switching/redemption date for the unexpired time period of the Fixed Rate Period
T = Period of Time in months to the end of the Fixed Rate Period
A = Principal amount which is subject to the existing fixed rate and which is being switched or redeemed


In my case, using the ICE rate EUR 1100, I get:

10.12.2018 4yr = *W = 0.121*
23.12.2020 date the closest to now, 2yr is *M = -0.519*, negative rate

B = (0.121 - (-0.519)) *27/12*150,000 = (0.64)(27/12)(150000) = *216,000*


?????


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## Protocol (26 Dec 2020)

_*I think the problem is with decimals / percentages?*_

B = (W - M) x T / 12 x A, where:

B = The Break Funding Fee
W = The Wholesale Rate Prevailing at the date of the existing fixed rate applying to the loan was set
M = The Wholesale Rate prevailing at the switching/redemption date for the unexpired time period of the Fixed Rate Period
T = Period of Time in months to the end of the Fixed Rate Period
A = Principal amount which is subject to the existing fixed rate and which is being switched or redeemed


In my case, using the ICE rate EUR 1100, I get:

10.12.2018 4yr = *W = 0.121, in calculator use 0.00121?*
23.12.2020 date the closest to now, 2yr is *M = -0.519*, negative rate, *in calculator use 0.00519?*

B = (*0.00121 - (-0.00519*)) = 0.0064, or *0.64%, that does seem correct

A penalty/cost of just above half of one percent*

 (0.0064)(27/12)(150000) = *2,160 looks like a better answer?*


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## Protocol (27 Dec 2020)

OK, it looks like a 2,160 breakage fee.

I might save 0.4% over two years, from 2.6% now to 2.2% with UB.

Do I apply that 0.4% saving to the original balance, or the current 150k balance?

0.4% of 150k is 600pa saving, so 1,200 saving over two years.

Not worth it................


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## RedOnion (27 Dec 2020)

Protocol said:


> OK, it looks like a 2,160 breakage fee.


Your break fee is slightly less, as UB cap the break fee at 6 months interest. Still not worth it though.


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## Protocol (6 Jan 2021)

OK, thanks.

I am doing a 10% overpayment to UB today, rang them, I mentioned the 2.2% 2yr rate, they are sending me out two letters:

rates sheet
breakage fee


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## Protocol (12 Jan 2021)

Letters rec'd from UB today, date on first letter is 06.01.2021.

Break fee = 1,944.28, valid until 14.01.2021.

Second letter, 07.01.2021, sets out the rate sheet.

2yr fixed 2.2% until 31.03.2023 is 39 less pm for same term, so a saving of 26 months * 39 = 1,014

RedOnion, thank you for your help.


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## HollowKnight (14 Jan 2021)

They really don't give you much time to reply!


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## DublinD (15 Jan 2021)

Protocol said:


> Letters rec'd from UB today, date on first letter is 06.01.2021.
> 
> Break fee = 1,944.28, valid until 14.01.2021.
> 
> ...


Out of interest, does the letter just show a break fee figure or does it show the calculation?


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## Protocol (15 Jan 2021)

I will check now.

Just the break fee, no calculations.


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## Protocol (15 Jan 2021)

However, in the second letter, which is about the alternative rate options, there are 12 footnotes.

One of these is about break fees.

It has a formula, and definitions/terms.


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## DublinD (24 Jan 2021)

Protocol said:


> I will check now.
> 
> Just the break fee, no calculations.


Just wondered if they disclosed the wholesale rate for ones mortgage. Guess it’s a case of working out myself to see the rate and then figure when would be a good time to break if ever. I’ll request my numbers to see.


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