The outlook for break fees if you fix for 10 years or more?

This borrower fixed for 10 years , three years ago. She is now selling her home and is now facing a break fee of €14,000 on a mortgage of €183k.


What are the lessons from this?

If you are absolutely sure that you are in your forever home, then it's ok to fix for a long term.

But if you might be trading up or moving in the medium term, how risky is it to fix for the long term?

The fixed rate break fees are based on the money market rates the lender can get. These are currently negative for long terms. But it would be expected that they would rise over time.

If they do rise, then there will be no break fee.

So maybe fixing for 10 years or 20 years today is low risk as the most likely outcome is that if you do want to break in a few years, there may be no break fee.

Brendan

Just to mention, this is where Avant & UB have an advantage if fixing for longer periods. Both cap their break fee:
UB at 6 months interest
Avant at 2% of balance (reduces after 10 years)

Avant offer to refund the break fee if you take out another mortgage with them within 12 months as well.

Brendan Burgess said:

She is now selling her home and is now facing a break fee of €14,000 on a mortgage of €183k.

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Yes but this is a cash flow thing mainly. I haven't done the sums and she could well be worse off overall but she will benefit at least to some extent from the lower rates on offer today compared to 2018.

AAM threads show that a lot of people don't really know what they are trying to do when they fix long term.

Brendan Burgess said:

But it would be expected that they would rise over time.

If they do rise, then there will be no break fee.

Click to expand...

I tend to agree that wholesale rates can't go much lower than today. But I thought that in 2018 too!