Fixed Rate - told no penalty if I pay off loan

[dubinamerica]

currently on a fixed rate mortgage.. was aware that I could pay off up to 10% without any breakage fee. I just rang the bank in question and the rep told me that due to the difference in the interest rates now, I would have NO PENALTY even for a higher amount, due to difference in interest rates..

Info from loan offer -
break fund cost = (original fixed rate) less (current fixed rate on offer for the term equating to remaining term)

Has anyone else heard of these? or paid off more than 10% off a fixed mortgage ?

 

[LDFerguson]

Re: Fixed Rate - told no penalty if I pay off loan !!

It happens occasionally if the bank knows that they can lend your money back out to someone else at a higher rate than what you're paying.

 

[NicolaM]

Re: Fixed Rate - told no penalty if I pay off loan !!

Hi,
It may well do(in fact I got similar advise from BOI re car loan).
However: Get it clarified in writing!
Nicola

 

[marksa]

Re: Fixed Rate - told no penalty if I pay off loan !!

very simple. if you borrowed from the bank say two years ago for 5 years (3 years left) at 4.3% when interest rates were much lower. Now the 3 year interbank rate (which is the usual basis for calculating break costs in banks) is around 4.7%. So the rate the bank is receiving from you is 4.3%, but if they "broke" it for you, they could lend the money for 3 years at 4.7%+ credit margin. A profit to the bank. The terms of most if not all mortgages does not compel the bank to show you back this profit.

 

[dubinamerica]

Thanks for all the feedback on this .. my understanding is I can pay up to 10% without any breakage fee and would still be on the same rate for the remainder of the fixed term..
I didn't ask the rep I spoke with what would happen to the rate if I paid over 10%.. whether I would pay out at the remainder of the 5 year fixed I'm on, or if I'm breaking out of that rate too.. that would be crucial in any decision for us.. I should probably check on that too. If I could pay over 10% and keep on the fixed rate for the remainder of the term, I would seriously consider that .. I was considering over payments for a year but might make more sense to pay the lump sum and channel any extra money into a regular savings a/c possibly.