Break and switch?

[gargoil7]

Given the below conflicting factors, what is the best approach & timing to getting a redemption (breakage) statement:

1. If you get a zero or nominal break fee statement it's valid only for 4 weeks or until the date of your next monthly mortgage payment.
2. break fees can change daily
3. switching can take weeks, sometimes months to complete

I've just got a nominal break fee (redemption statement) from my bank & I'm now starting the mortgage application process but my concern is by the time I've got mortgage approval the statement will be out of date & I'll have to request a new one which could be much higher. I could break out now but then I'd be on variable rate (I assume) for anything up to 2 or 3 months before the switch completes. The purpose of the switch is to save money & this approach would be against that purpose. Any advice from experience welcome.

 

[Brendan Burgess]

Which lender?
What is the amount of the mortgage?
What is their lowest variable rate?
How long do you have left on your fixed rate?

Could you, for example, break out now and fix again for one year, so any break fee would be small.

Brendan

 

[gargoil7]

Which lender?
What is the amount of the mortgage?
What is their lowest variable rate?
How long do you have left on your fixed rate?

Could you, for example, break out now and fix again for one year, so any break fee would be small.

Brendan

Not sure these details are relevant to the query per se but;
UB to Avant
Prefer not to say
2.2%
4 years
No & I don't see how this would be a suitable approach given I'm trying to switch, not stay with the same lender.

 

[Brendan Burgess]

So you are on 2.2% and you could move to a variable rate of 3.1%
If your mortgage is €100k, this would cost you .9% or €900 in extra interest
If it takes four months to switch, this would cost you €300
By switching you are saving 0.25% a year or €250

The idea of fixing for a year is that if you break after 4 months, the potential break fee would be based on just 8 months left.

As it is, the potential break fee would be based on 3 years and 8 months.

They use a wholesale rate to calculate the break fees.
To do a proper estimate, you need to find out what it was when you fixed.
What it is now for 4 years.

And then guess what it might be.
Given that your fixed rate is just 2.2% at present, I would be tempted to just leave it and hope that the break fee does not rise in the meantime. If it does, you can stay where you are.

Brendan

 

[gargoil7]

Objective: minimise cost of credit (i.e. get lowest available rate for as long as possible).
Current mortgage: UB 5yrs fixed @2.2%, 23 years 9 months remaining, balance 295k, LTV 59%, monthly of €1328. A3 rated house.
UB breakage fee: TBC. Redemption statement due in post by end of this week (UB couldn't qoute it over the phone at point of request).
Got AIP from Avant for 24yrs with 7yrs fixed at @1.95% (variable follow-on 2.5%) with monthly of €1281
We'd likely make an overpayment on the UB balance (by up to 15k) before switching with a view to reducing the monthlys to say €1216 but keep overpaying Avant by €110 at our current monthly amount of €1328 in order to reduce the cost of credit.
Next step is to pay for an Avant evaluation (€185).

Questions:
1. Product: Wondering which of the below products makes the most sense to switch to financially;
A. Avant 7yrs fixed 1.95%
B. Avant 10yrs fixed at 2.1%
C. AIB Green mortgage 5yrs fixed @2.1% with €2k cashback

I presume A given that cashbacks are generally gimmicks & A has 2 more years at a lower rate of @1.95% once C expires (can't foretell future rates of course).

2. Provider: an overpayment facility is a important to me but I note from this thread that a number of people have had a negative experience communicating with Avant (slow or no response etc), even after going through broker. I wonder is this enough to consider option C above.

3. Evaluation timing: In case the UB breakage fee makes it unviable, rather than potentially throwing away €185 I presume I should wait for the UB breakage fee to arrive in the post before order/paying for the Avant evaluation?

 

[nephster]

UB breakage fee: TBC. Redemption statement due in post by end of this week (UB couldn't qoute it over the phone at point of request).

Ring UB and ask for the break fee again - once the letter has been generated, they can tell you over the phone. To put this in context, the letter from UB when I requested a break fee never arrived, and for many others it has arrived only just before or indeed after the quote has run out.
You can accept the fee over the phone too.

 

[gargoil7]

Ring UB and ask for the break fee again - once the letter has been generated, they can tell you over the phone. To put this in context, the letter from UB when I requested a break fee never arrived, and for many others it has arrived only just before or indeed after the quote has run out.
You can accept the fee over the phone too.

UB break fee already requested Friday last, takes up to 5 working days to be generated before being posted out. It's still being generated (checked today) but once generated it'll be available over the phone so I'll check tomorrow and Wed.

As for provider & product choice, anyone have any thoughts? I read ICS allows 20% overpayment Vs Avant's 10%

 

[HollowKnight]

Just in case it changes anything for you, I think Avant only accept the overpayment as a lump sum and not a monthly overpayment. (same with ICS but open to correction).

 

[Paul F]

@gargoil7 I'm going to assume you fixed with Ulster Bank in August 2020. Please tell me if that is incorrect.

Your Ulster Bank break fee should be zero.

I don't think your UB monthly repayment falls to €1216 with a €15k overpayment – I think it falls to €1261.

But let's assume you make that €15k overpayment before switching.

Looking at the AIB 2.1% green 5-year fixed rate (2.1% and €2k cashback) and the Avant 7-year fixed rate (1.95%):

• In 5 years time, you will have saved virtually the same amount regardless of which one you pick
• In 7 years time, you will be better off with the Avant product by about €650 (that's assuming you can get a 2.1% rate with AIB when the 5-year fixed rate ends)

Comparing the Avant 1.95% and the Avant 2.1%, you'll be worse off by about €2,650 after 7 years if you go with the 2.1% rate (but you will have the security of an extra 3 years at that fixed rate).

But a (potentially big) point in AIB's favour is the way in which they calculate their break fee – it's laid out in this thread and this thread, but basically there is a decent chance that if they offer a lower rate in the future you could switch to that rate without incurring a break fee. And for the same reason there is also a decent chance that you will be able to make an overpayment (of any size) without incurring a break fee.

 

[gargoil7]

@gargoil7 I'm going to assume you fixed with Ulster Bank in August 2020. Please tell me if that is incorrect.

Correct

Your Ulster Bank break fee should be zero.

Music to my ears, thank you @Paul F !

I don't think your UB monthly repayment falls to €1216 with a €15k overpayment – I think it falls to €1261.

I just rechecked on Karl's Mortgage Calculator & a mortgage of €280k (IE a UB overpayment of €15k from €295k) at 1.95% over 24 years would give a €1218 monthly . How did you calculate €1261?

But let's assume you make that €15k overpayment before switching.

Looking at the AIB 2.1% green 5-year fixed rate (2.1% and €2k cashback) and the Avant 7-year fixed rate (1.95%):

• In 5 years time, you will have saved virtually the same amount regardless of which one you pick
• In 7 years time, you will be better off with the Avant product by about €650 (that's assuming you can get a 2.1% rate with AIB when the 5-year fixed rate ends)

Not much in it from a net balance perspective then.

Comparing the Avant 1.95% and the Avant 2.1%, you'll be worse off by about €2,650 after 7 years if you go with the 2.1% rate (but you will have the security of an extra 3 years at that fixed rate).

Would you mind sharing the calculation behind the €2650 figure? From my own comparison calculations for a mortgage of €280k over 24yrs (after €2k cashback is put 100% towards the monthly repayments & without making any other overpayments):
€1650 better off with Avant. High-level breakdown;
• Monthly repayments: €350 better off with AIB. (€20pm difference in monthlys * 12 * 7 = 1650. 2000 - 1650 = 350)
• Balance at end of 7 years: €2k better off with Avant. (213.3k AIB - 211.3k Avant = 2k). Due to lower interest payment with Avant.

But a (potentially big) point in AIB's favour is the way in which they calculate their break fee – it's laid out in this thread and this thread, but basically there is a decent chance that if they offer a lower rate in the future you could switch to that rate without incurring a break fee. And for the same reason there is also a decent chance that you will be able to make an overpayment (of any size) without incurring a break fee.

Good point & definitely a plus for AIB customers compared to Avant's 2% breakage fee (which iirc would, based on my current balance, be twice the max UB breakage fee which is capped at 6 months interest) but I guess the risk here is that AIB could change their method of breakage calculation at any time in the future?

Related, unless Avant leave the Irish market I imagine most people would expect Avant to remain more competitive on rates alone than AIB if not the most competitive in the market, as they currently are, right? Further it seems in the short term that if rates move that they would more likely go up rather than down. As such the likelihood of having an opportunity to break & move to a lower AIB rate is lessoned, in the short term.

As for ICS, are there any other benefits to ICS over Avant other than the 20% Vs 10% overpayment facility? For example have ICS customers had the same level of difficulty corresponding with the ICS as Avant customers have?

 

[Paul F]

I just rechecked on Karl's Mortgage Calculator & a mortgage of €280k (IE a UB overpayment of €15k from €295k) at 1.95% over 24 years would give a €1218 monthly . How did you calculate €1261?

I misunderstood this part of your post from Monday. What I was saying is that a €15k overpayment would reduce your Ulster Bank monthly repayment to about €1,261. You were saying that the same overpayment followed by switching to Avant's 1.95% rate would reduce your Avant monthly repayment to about €1,216. Both calculations are correct.

Would you mind sharing the calculation behind the €2650 figure?

This was a comparison over 7 years of Avant's 1.95% rate versus Avant's 2.1% rate – AIB and cashback doesn't come into the comparison. I simply estimated the difference in interest paid under the two rates. That's 0.15% of €280k over 7 years, or €280k * 0.15/100 * 7 = €2,940, but reduce that a bit because the balance (and the interest paid) will be reducing with time. Hence the €2,650 saving over 7 years if you go for the 1.95% rate instead of Avant's 2.1% rate.

I guess the risk here is that AIB could change their method of breakage calculation at any time in the future?

They could but the changed terms would only apply to customers who take out an AIB mortgage after that change. The use of the two calculation methods (and choosing the one that is more favourable to you) would be written into your mortgage contract if you switch now or soon, and they couldn't take that away from you. (At least, it appears to me to be part of the mortgage contract. I'd be interested to know if others agree or disagree.)

Related, unless Avant leave the Irish market I imagine most people would expect Avant to remain more competitive on rates alone than AIB if not the most competitive in the market, as they currently are, right?

You can see from my first calculation (from yesterday) that AIB are competitive with Avant for your particular case over a 5-year time horizon. That's because of the AIB cashback, you are eligible for their green mortgage, you have a low LTV and your balance isn't huge.

Related, unless Avant leave the Irish market I imagine most people would expect Avant to remain more competitive on rates alone than AIB if not the most competitive in the market, as they currently are, right?

In this post, @letitroll says that Avant might not be in Ireland for the long term. Of course, nobody knows for sure but it's interesting.

Further it seems in the short term that if rates move that they would more likely go up rather than down. As such the likelihood of having an opportunity to break & move to a lower AIB rate is lessoned, in the short term.

Your observation is correct, but it assumes that interest rates go up. It's possible that the current higher inflation is temporary and will subside, keeping rates low. Again, who knows?

As for ICS, are there any other benefits to ICS over Avant other than the 20% Vs 10% overpayment facility? For example have ICS customers had the same level of difficulty corresponding with the ICS as Avant customers have?

I don't know much about ICS but this post by @pguyo says he confirmed with ICS that their 1.95% rate is not available to existing customers. This suggests that they discriminate against existing customers (like PTSB), which could mean that you would have to switch away from them again in a few years to maintain a low rate.