Fixed rate breakage, Cashback switch / Fix

morrisja

New Member
Messages
1
Currently have a split mortgage with AIB, about 428k fixed (@ 3.5% for 7 years in October 2018) and 107k variable (@ 3.15%).

They have quoted me a breakage fee of 7.3k @ 09/03/20 which seems ballpark what I'd expect but I'm struggling to replicate. Their current 7 year fixed rate is 3.15% so I think the maths here is something like:

(3.50-3.15)% x 428k x 68/12 = 8.5k

Market rates have fallen by more than 35bps so I'd expect calculating using the AIB alternative method based on market rates would give a much higher breakage fee.
Any idea what I'm doing wrong with the approach above?

I was considering breaking and then doing a run around for the various cashback offers as I've read about in this forum, but suspect that given the current climate (i.e. coronavirus), banks may not be as inclined to approve a switch (we're about 85% LTV based on purchase price in 2018, but who knows when the dust settles). It certainly feels riskier if there is some volatility expected in house prices over the next while - but I'm not clued in to how much the banks are thinking about that - anyone have any insight?

The other option is to just re-fix the fixed part at the AIB 5 year green rate of 2.45%. The new payment rate would give a drop in monthly payments of 240 per month so over 5 years would save 14.5k in payments and then (assuming variable rate of 3.15% stays in place) would leave a balance that's 7.5k lower at the end of the original 7 year fixed period. This seems like a bit of a no-brainer but wonder if my numbers stack up here?
 

RedOnion

Frequent Poster
Messages
4,069
Any idea what I'm doing wrong with the approach above?
It gets very technical. If you keep repaying the balance reduced over the 7 years, so it doesn't stay at 428k. AIB work it out on a reducing balance so you've the lower break fee than calculating it out on current balance.

Yes, you'll save money doing what you're saying.
 

HollowKnight

Frequent Poster
Messages
204
A friend who is in the middle of a house purchase said their solicitor has said they're not taking new business until coronavirus passes. So it might be difficult to carry out multiple switches if solicitors near you are following this advice.
 
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