Hi everyone, I am thinking about paying off a chunk from the mortgage early (due to the scary financial situation the country finds itself in) but I am on a 5 year fixed and will have about 3.5 years left on that when I envisage paying the chunk off (in October). I will not be penalised for breaking the fixed contract as fixed rates have risen since I've taken out the mortgage. However, I am wondering whether or not I will remain on the same fixed mortgage for the remaining 3.5 years at the rate I already have (3.86%) or will the bank automatically put me onto a SVR at the prevailing rate?
Query on Breaking Fixed Mortgage
- Thread starter japester
- Start date
The current interest rates have nothing to do with whether you will be charged a penalty for breaking. All fixed rate mortgages have a penalty if you break them. Ask the bank in writing what the penalty is if you pay off a lump sum.
Some banks are allowing overpayments even on fixed rates. Check if your bank allows it. You could also negotiate with the bank to repay a portion and to continue on with the remaining term of the fixed rate. To get this you must ask and they may accommodate you.
When you have the amount of the break penalty you should weigh up the figures and you may decide to wait the 3.5 years and put the money in a high interest account and then pay it off.
Some banks are allowing overpayments even on fixed rates. Check if your bank allows it. You could also negotiate with the bank to repay a portion and to continue on with the remaining term of the fixed rate. To get this you must ask and they may accommodate you.
When you have the amount of the break penalty you should weigh up the figures and you may decide to wait the 3.5 years and put the money in a high interest account and then pay it off.
Current interest rates have everything to do with what you are charged for breaking a fixed rate because the bank charges you a cost of funding fee which is basically what current rates compared to your fixed rate.
OP, just because their published rates haven't changed doesn't mean their cost of funding hasn't changed. All you can do is ask the bank what the charge will be if any. They might well be willing to accept a repayment with no charge. They probably will to be honest. They won't kick you off the fixed unless you ask them to.
Thank you Bronte/Sunny for your replies.
The bank in question is AIB and there is a formula they use for deciding what penalty (if any) will be charged in the event that some or all of the mortgage is repaid early. In there case it is:
early breakage cost = A * U * D% where
A is the amount repaid early,
U is the unexpired period (the period remaining to the end of the original fixed interest period) and
D is the difference in the interest rate (the difference between the fixed interest rate applicable at the start of the fixed interest rate period and the fixed interest rate applicable as at the date of the early repayment, for the unexpired fixed interest rate period)
In my case (were I to repay in October of this year) and pay off EUR50,000
A = 50000
U = 3.5
D = 3.86-4.25 (this is negative)
as D is negative in my case then "no early breakage cost will arise".
AIB have since confirmed this in writing.
My main concern was whether or not I would effectively lose my 3.86% fixed rate were I to repay some of the mortgage early. I have just contacted AIB and they have confirmed that I will remain on the same fixed rate and term, even if I were to repay some of the mortgage early, which is great news for me
The bank in question is AIB and there is a formula they use for deciding what penalty (if any) will be charged in the event that some or all of the mortgage is repaid early. In there case it is:
early breakage cost = A * U * D% where
A is the amount repaid early,
U is the unexpired period (the period remaining to the end of the original fixed interest period) and
D is the difference in the interest rate (the difference between the fixed interest rate applicable at the start of the fixed interest rate period and the fixed interest rate applicable as at the date of the early repayment, for the unexpired fixed interest rate period)
In my case (were I to repay in October of this year) and pay off EUR50,000
A = 50000
U = 3.5
D = 3.86-4.25 (this is negative)
as D is negative in my case then "no early breakage cost will arise".
AIB have since confirmed this in writing.
My main concern was whether or not I would effectively lose my 3.86% fixed rate were I to repay some of the mortgage early. I have just contacted AIB and they have confirmed that I will remain on the same fixed rate and term, even if I were to repay some of the mortgage early, which is great news for me