Key Post It may be much cheaper than you think to break out of a fixed rate early...

laura28

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98
Hi All, I have received an email today from AIB advising of their new 5 year fixed green rate of 2.5%. We meet the requirements and I am keen to fix. We have a split mortgage with approx. 260k on an SVR (3.15%) and 100k on a tracker (1.75%). We are only interested in fixing the SVR portion of the mortgage. I know that at a stage later this year we will be in a position to pay a lump sum off the mortgage approx. 100k. Any advice how this might impact the fixed rate - break cost etc? The savings immediately would be great in terms of fixing to 2.5 but can you make a lumpsum payment when you fix or is this considered breaking?

All advice greatly appreciated.
Thanks
 

RedOnion

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4,069
note: the below is my interpretation of AIBs terms. Any reader considering taking this fixed rate product will have to satisfy themselves on the terms rather than relying on this.

@laura28
Apologies, I missed your previous post in this topic. I've been meaning to do a case study in this specific rate.

Normally I'd tell you to look at the key post on break fees, and if the 4 year rate next year is less than the 5 year rate now, there'll be s break fee. But...

This is AIB.

Historically AIB calculated break fees based on the difference in the rare they charged. I've helped other posters fight it, and they've changed there terms and conditions to look at market rates. But they also kept the old condition as well, and you get the best of both.

The key part is
"(D%): Difference between your original fixed interest rate at the start of the fixed interest rate term, for the full fixed interest rate term, and the applicable fixed interest rate offered by the Bank at the time the mortgage loan is repaid or converted, for the period of (U)"

Your 5 year rate is 2.5%

The 3 & 4 year rates are 2.85%. i.e. higher than your rate.

The only way that AIB can ever charge a break fee on the 2.5% green mortgage is by reducing shorter term rates below 2.5%.

@Brendan Burgess
Could could you split this out as a separate topic, in light of our ongoing discussion on AIB break fees. You might also review if I've written the above in English!
 
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laura28

Frequent Poster
Messages
98
@laura28
Apologies, I missed your previous post in this topic. I've been meaning to do a case study in this specific rate.

Normally I'd tell you to look at the key post on break fees, and if the 4 year rate next year is less than the 5 year rate now, there'll be s break fee. But...

This is AIB.

Historically AIB calculated break fees based on the difference in the rare they charged. I've helped other posters fight it, and they've changed there terms and conditions to look at market rates. But they also kept the old condition as well, and you get the best of both.

The key part is
"(D%): Difference between your original fixed interest rate at the start of the fixed interest rate term, for the full fixed interest rate term, and the applicable fixed interest rate offered by the Bank at the time the mortgage loan is repaid or converted, for the period of (U)"

Your 5 year rate is 2.5%

The 3 & 4 year rates are 2.85%. i.e. higher than your rate.

The only way that AIB can ever charge a break fee on the 2.5% green mortgage is by reducing shorter term rates below 2.5%.

@Brendan Burgess
Could could you split thus our as a separate topic, in light of our ongoing discussion on AIB break fees. You might also review if I've written the above in English!

Thanks so much for the response and that makes sense.
I've also just spoken with someone in AIB who advised that you can pay a lump sum off a fixed rate mortgage and this doesn't count as breaking the fixed rate - does this sound correct?
 

RedOnion

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I've also just spoken with someone in AIB who advised that you can pay a lump sum off a fixed rate mortgage and this doesn't count as breaking the fixed rate - does this sound correct?
No, that makes no sense.
Ask for them to put that in writing, and see how you get on.
 

RedOnion

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4,069
Here's the full wording re when a break fee might be due for AIB. It clearly includes a lump sum repayment.

" you may have to pay us an early repayment charge if you; (i) repay all or part of your mortgage loan early, (ii) make an out of course repayment, or (iii) convert the interest rate on your loan to another interest rate. Any or all of these instances may result in a cost to the bank."
 
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laura28

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98
Here's the full wording re when a break fee might be due for AIB. It clearly includes a lump sum repayment.

" you may have to pay us an early repayment charge if you; (i) repay all or part of your mortgage loan early, (ii) make an out of course repayment, or (iii) convert the interest rate on your loan to another interest rate. Any or all of these instances may result in a cost to the bank."
Thanks Red Onion - apologies only seeing this now...

BAsed on the above and your previous post, the only way AIB could charge is a fee for breaking this fixed rate (in order to make a lump sum payment) would be if they had a fixed rate lower than that which we are on, e.g. lower than 2.5??
 

RedOnion

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the only way AIB could charge is a fee for breaking this fixed rate (in order to make a lump sum payment) would be if they had a fixed rate lower than that which we are on, e.g. lower than 2.5?
Hi Laura,
Yes, that's my understanding.
I'm sure it's not their intention, but it's what their terms & conditions say.
 

Chemist

Registered User
Messages
5
Lender: AIB
Mortgage outstanding : €263k
Date i fixed: June 2018
Period: 5 years
Fixed rate :3.3%
Term left : 40 months fixed at 3.3 %, mortgage expires in June 2038.
Breakage Fee Quoted: €3,534.53

Does this breakage fee seem excessive? We would hope to switch to the 2.5% fixed term green mortgage as our house meets the BER requirements.

Thanks all!
 

RedOnion

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@Chemist
That looks correct. You're benefitting from AIBs unusal methodology. Using market rates it'd be >6,000

It's still worth while breaking. It costs you 0.4% to save 0.8%.

I'm a little out of touch with each banks practice, but if you don't have 3k to hand, ask if they'll capitalise the break fee for you.
 

Aph2016

Registered User
Messages
10
Lender: KBC
Mortgage outstanding : €265k
Date i fixed: September 2018
Period: 3 years
Fixed rate : 2.65%
Term left : 19 months fixed at 2.65 %
Breakage Fee Quoted: I think it was around €2500 at the time I asked 2 or 3 months ago.

Anyone able to advise on how I can calculate the KBC breakage fee myself on a monthly basis?
 

Paul F

Registered User
Messages
37
Lender: KBC
Mortgage outstanding : €265k
Date i fixed: September 2018
Period: 3 years
Fixed rate : 2.65%
Term left : 19 months fixed at 2.65 %
Breakage Fee Quoted: I think it was around €2500 at the time I asked 2 or 3 months ago.

Anyone able to advise on how I can calculate the KBC breakage fee myself on a monthly basis?
@Aph2016 Can you check the break for you were quoted? €2,500 doesn't seem right.
 

BusinessFailure

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Messages
20
I thought I would post this, but more as a word of warning against long fixed mortgages :mad:

Lender: BoI
Mortgage outstanding : €316k
Date i fixed: June 2018
Period: 10 years
Fixed rate : 3.2%
Term left : Mortgage expires August 2044
Breakage Fee Quoted: €26,500

Don't be like me; don't fix for a long period :(
 

RedOnion

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4,069
I thought I would post this, but more as a word of warning against long fixed mortgages :mad:

Lender: BoI
Mortgage outstanding : €316k
Date i fixed: June 2018
Period: 10 years
Fixed rate : 3.2%
Term left : Mortgage expires August 2044
Breakage Fee Quoted: €26,500

Don't be like me; don't fix for a long period :(
That's a big number, and shows how deeply negative rates have gone. Interbank rates are currently negative out past 12 years. The 10 year rate was +1% when you fixed. At the time it seemed inconceivable that they could even stay that low.

If the fear goes out if the market you might see that break fee come down, but it'd take a lot to be materially lower.

I know your circumstances have changed, but you're very lucky to have that overpayment locked into your repayment profile. For someone repaying their mortgage to schedule, I think a 10 year rate around the 3% mark is not something I'd be advising to avoid, but yes the big pitfall is that there can be a big break fee if you want to break out 20% into the term and markets have gone through an unprecedented drop in rates.
 

BusinessFailure

Registered User
Messages
20
At the time it seemed inconceivable that they could even stay that low.
Yes, that's what I thought at the time too. I should never think that I understand markets!

The overpayment was the only reason that I was willing to fix for such a long time, but again I wasn't expecting interest rates to get so much lower!
 

Super Sesame

Registered User
Messages
15
I was using the above UB example to work out what my own early redemption charge would be. We have sold our house so will redeem the full amount. UB have given me an estimate of the charge to be €1500, but using the calculator I am getting €0. Where could I be going wrong?

Took out fixed rate 01/09/2019. Fixed at 2.3% to Dec 2021. Balance at time was about 133,000
Balance today is 130,000. House sale closed March 19.
I worked out inter bank rate as -.42 and -.46.

Is the correct calculation 0 or closer to €1500? I think their estimate looks like 6 months interest.
 

RedOnion

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4,069
I worked out inter bank rate as -.42 and -.46.
Hi,
Unfortunately it's difficult to get accurate information on interbank rates at the moment. There's a big spread between bid / offer rates, and the swap market has diverged from the rates available to banks to put money on deposit.

But 1500 looks off. Deposit rates would has to have dropped 0.6% based on your details. They haven't done that!

I'm not sure how they do redemption letters. They might give the max (6 months) and then do the real calculation when you actually redeem. You'd need to check with them, and ask for details of the final calculation.
 

Super Sesame

Registered User
Messages
15
Thanks RedOnion, thats what I was thinking. Hopefully I will be pleasantly surprised. I can see mortgage account disappeared yesterday from my online banking so hope that means its currently being processed. Will update when I get a definitive result.
w
 
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