Cost of moving from fixed rate mortgage

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Kate10

Registered User
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Hi guys,
Does anyone know how the banks calculate the penalty to be paid when you leave a fixed rate early? We fixed at 5.25% 3 months ago for a 3 year period. From my conversation with a guy in AIB (who didn't seem too sure of himself) the penalty will be such that it will negate any benefit in moving.

Is this correct?

Thanks very much.
 
The terms & conditions of the mortgage should outline how any penalty is calculated. Or just as AIB for the details and what the penalty would be now. The AIB dude could be correct but don't expect/assume independent, professional advice from a tied agent with a vested interest in keeping you on a higher margin product.
 
Kate10 said:
Hi guys,
Does anyone know how the banks calculate the penalty to be paid when you leave a fixed rate early? We fixed at 5.25% 3 months ago for a 3 year period. From my conversation with a guy in AIB (who didn't seem too sure of himself) the penalty will be such that it will negate any benefit in moving.

Is this correct?

Thanks very much.
Click to expand...

I know mine (5 year fixed at 4.8%) says that the penalty for an early break is 6 month's interest. Obviously you need to check your own T&C's.

pretty steep!
 
Hi Kemo Sabe,
I will pull out my loan offer when I get home and re-read it. For some reason I had thought that there were some limits on the penalties the banks could impose in these circumstances but I think I must have dreamt that!!

Oh well! It was the right decision at the time ...

Thanks for your answers.
 
Kate10 said:
Hi Kemo Sabe,
I will pull out my loan offer when I get home and re-read it. For some reason I had thought that there were some limits on the penalties the banks could impose in these circumstances but I think I must have dreamt that!!

Oh well! It was the right decision at the time ...

Thanks for your answers.
Click to expand...

I agree. As far as I know it is illegal for a bank to just charge a blanket six months interest. They can only charge a reasonable penalty based on the cost to them. I would certainly contact the ombudsman if my bank tried to charge me 6 months interest for breaking a fixed rate mortgage
 
ClubMan said:
Under what legislation?
Click to expand...

Just tried to find something but couldn't so must be wrong. I am sure I read something about it before but it might have just been someone giving out about the practice
 
Consumer Credit Act would probably be the logical place and I can't see anything there.
 
PaddyW said:
They'll probably charge you what they lose out on with the fixed rate
Click to expand...

Thats what I thought but it does appear banks can charge what they like as long as it is outlined in the terms and conditions of the loan.
 
Sunny said:
I agree. As far as I know it is illegal for a bank to just charge a blanket six months interest. They can only charge a reasonable penalty based on the cost to them. I would certainly contact the ombudsman if my bank tried to charge me 6 months interest for breaking a fixed rate mortgage
Click to expand...

well, it's definitely in my fixed rate contract as I checked it a few months ago and reconfirmed with my mortgage provider

whether it's legal or not is another question.

I work in banking and it would be common to charge a break fee for anyone breaking a fixed interest contract (be that a loan or a swap or whatever) so I'd be suprised if it was illegal. What legislation outlaws it Sunny? (edit - saw your previous post; don't bother replying)
 
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