Key Post The policies of the different banks on overpaying a fixed-rate mortgage

Updated by @Paul F Feb 2023

From Key Post


Can I overpay without a penalty?
A question that pops up in a few threads discussing fixed rate mortgages is whether or not you can overpay during the fixed rate term before the bank has to check if an early repayment charge is payable. (The term "break fee" is used interchangeably with "early repayment charge", but you do not have to break out of your fixed-rate mortgage to make an overpayment.)

AIB: No early repayments allowed without checking the break fee

• Note that because of a quirk in how AIB calculate break fees, if you are on their "green" fixed rate (and some other rates) you will be able to overpay by an unlimited amount without penalty for the foreseeable future. More details in this thread.

Avant Money: Overpay by up to 10% of the outstanding balance per calendar year

• You can only make up to two overpayments per calendar year, so you would have to save up your overpayments and pay them as lump sums

Bank of Ireland: The greater of €65 or 10% of the normal repayment each month. However, this is done by increasing the monthly repayment, and can’t be paid in as a lump sum. There are examples on AAM of posters who have set up a monthly overpayment while on variable, and then being able to continue this once they have fixed, and got confirmation from BOI on same.

• Note that this overpayment limit ("10% of the the normal repayment each month") is much lower than "10% of the outstanding balance per year", which some other lenders offer
• I.e., Bank of Ireland offers less overpayment flexibility than the lenders that allow overpayments of "10% of the outstanding balance per year"

EBS: No early repayments allowed without checking the break fee

Finance Ireland: Overpay by up to 10% of the outstanding balance per year on their 10-year and longer fixed rates (closed to new business)

• And overpay by up to 20% of the outstanding balance per year on their 3- and 5-year fixed rates
• The "year" is a rolling year, not a calendar year
• Only one overpayment is allowed per year

Haven Mortgages: Seemingly no early repayments allowed without checking the break fee

ICS: "Overpay your mortgage by up to 20% annually without penalty"

• This almost certainly means 20% of the outstanding balance – see here

KBC: 10% of the initial balance can be repaid early at any stage during the term without incurring a break fee. This is a cumulative limit of the fixed term, so if for example you have fixed for 5 years, and you overpay by 10% of the balance in year 1, that's your limit used up for the 5 years.

• Bank of Ireland will maintain this feature for KBC customers whose fixed-rate mortgages transfer to BOI, but only until the end of their KBC fixed-rate period (see page 13 of this booklet)
• After the end of your KBC fixed rate, Bank of Ireland will withdraw this overpayment feature from you

PTSB: No early repayments allowed without checking the break fee

• But you can overpay by as much as you like each month without penalty, and this builds up as a credit on your account
• You can use this credit to take a payment holiday or to reduce the monthly repayments (or to pay off part of the principal at the end of the fixed period)
• You are only charged mortgage interest on the net balance, i.e., on the mortgage balance after the credit has been subtracted
• See this thread for more details

Ulster Bank: 10% of the balance at the beginning of the calendar year can be repaid each year without triggering a break fee calculation

• Permanent TSB's "welcome booklet" for people whose mortgage was transferred from Ulster Bank to PTSB says the following:
  

  As a Permanent TSB customer you will still be able to avail of your 10% overpayment, previously offered by Ulster Bank. Please contact our Mortgage Operations Department to discuss this option as there are a variety of ways to make a lump sum lodgement.

  Click to expand...

Making an overpayment, no matter how large, will not result in you losing your fixed interest rate – i.e., you do not have to break out of your fixed rate to make an overpayment (but you may have to pay a penalty to make the overpayment).

Keep in mind that you can ask your lender for a break fee quote/early repayment charge quote at any point, and if it is low enough for your tastes you can make an overpayment (and pay the ERC).

But note also that overpaying your mortgage/reducing your balance may not be the best use of your money. Your priorities should usually be:

• Paying off expensive debt (credit cards, personal loans, car loans, etc.)
• Building up an emergency fund in a savings/current account (3 to 6 months' living expenses)
• Saving money for any expenses you will have over the next few years (kids; buying a car; childcare; home renovations; adult children going to college, etc.)
• Maxing out your pension contributions (very large tax relief is given)
• Overpaying your mortgage

in approximately that order. Consider posting a thread about your situation in the Money Makeover forum.

Another option if you are with EBS is to reduce the term. They won't charge a break fee if you reduce the term of the loan.
e.g. if you have a 20 year loan but want to over pay, you could reduce the term to 14 years instead without a break fee but obviously pay more each month.

I have extracted this from another thread and made it a key post.

The first thing anyone should do is to call their bank and ask what the break fee for breaking out of the fixed rate on their entire mortgage.

Many people will find that there is no break fee or a very small break fee. In that case, they can make a capital repayment of any amount they like without penalty.

But this break fee changes all the time. If they tell you today that there is no break fee, don't assume that next week you can just pay €20k off your mortgage and that there will be no break fee. There might well be.

So when you have the cash, make a call. Get the letter and make the payment within the time limit in the letter.

If you have the money to overpay your mortgage, even if there is a break fee, it's probably worth paying

The way that the break fee is calculated usually means that you will save money by paying the break fee rather than paying interest for the remaining term of the mortgage.

misemoi said:

Double check Ulster Bank. They recently informed me it was rolling year, not calendar year. Makes a difference if you start or switch mid year, ie you could overpay a lot in the years that are not full years.

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Hi misemoi

I have to say that rolling years would make much more sense.

Would you have a link to the rules?

Does this mean that if you have a €100k mortgage today, you could pay €10k off it?

Then you can't do anything else until 17th September 2021?

That makes more sense than paying €10k on 31 December 2020 and then €8k the following day.

Brendan

Moderator's note: it is 10% of the balance per calendar year in the case of Ulster Bank. (The balance in question is the balance as it was at the beginning of the calendar year.)

A bit more info on Avant's overpayment policy, taken from this thread:

1. The Overpayment Allowance
1.1 If your loan is on a fixed rate of interest, you will not incur an early
redemption fee if you partially repay your loan early provided that:
(i) you only make up to two payment(s) in any calendar year over and
above the scheduled monthly payment instalments; and
(ii) the total of these overpayment(s) does not exceed a maximum of 10%
of the loan balance as at:
• 1st of January of the calendar year in which the early repayment(s)
are made, or,
• the date of drawdown if the early repayment(s) are made in the first
calendar year of the loan (the “Overpayment Allowance”).

Click to expand...

Note that it says that you can only make up to two overpayments per calendar year, so you would have to save up your overpayments and pay them as lump sums.

Paul F said:

A bit more info on Avant's overpayment policy, taken from this thread:



Note that it says that you can only make up to two overpayments per calendar year, so you would have to save up your overpayments and pay them as lump sums.

Click to expand...

This is so helpful, I didnt realise it was twice a year only, AND the piece on the timing. I'll be hopefully switching to them in June/July, so I can make one overpayment this calendar year I think?

HonestlyTho said:

I can make one overpayment this calendar year I think?

Click to expand...

No, it doesn't say that.

@Paul F has kindly updated the first post in this thread.

But please continue adding to this thread to keep it up to date.

Brendan

Hi,
I have already paid the 10% over payment allowed on my kbc fixed rate mortgage. I asked if I could pay more and they said yes, as the break fee is zero. (I refixed in June 2022 before interest rates started to rise)

With interest rates on the rise now, does that mean my break fee will be zero as long as rates rise?

Also, kbc have not reduced my monthly overpayment of €300, arranged before I overpaid a lump sum. I would like to keep that if possible but technically I am now also overpaying above the 10% every month (their error). If the break fee/overpayment fee is zero that should be ok but how will I know if the break fee goes up?

Stitcher said:

With interest rates on the rise now, does that mean my break fee will be zero as long as rates rise?

Click to expand...

Yes but the interest rate in question in the wholesale (interbank) interest rate, not the retail rate.

The retail rate is the headline interest that you see quoted in relation to a mortgage, e.g., a 3% five-year fixed rate.

Swap rates are a good proxy for wholesale interest rates. Here is the 5-year swap rate:

You can see that it and other swap rates have risen since June, which is why your break fee is currently zero. But if the relevant swap rate (which will not necessarily be the 5-year one) is lower in the future than the relevant swap rate was in June, there will be a break fee.

Stitcher said:

Also, kbc have not reduced my monthly overpayment of €300, arranged before I overpaid a lump sum. I would like to keep that if possible but technically I am now also overpaying above the 10% every month (their error). If the break fee/overpayment fee is zero that should be ok but how will I know if the break fee goes up?

Click to expand...

The risk is that KBC are considering this to be an overpayment, and if wholesale interest rates fall you will face a break fee. You should clarify with them what they consider your normal monthly repayment to be. Get it in writing. If they say that they consider the extra €300 every month to be an overpayment, be aware that you could face a break fee in the future.

Is they say that they consider the €300 to now be part of your normal monthly repayment, you cannot stop making this extra €300/month repayment – otherwise they will consider that you are in arrears. It's best to get it clarified and sorted out if necessary.

How long did you re-fix for?

Hi Paul,
thanks so much for that. Interesting to see the swap rates were already well up by July/August when I refixed. Also interesting to see how they fluctuate much more than the retail rates ! I could see a time when it might just dip below what it was when I fixed with such fluctuations( from the graph it was around the 1.5% figure when I refixed I reckon).

I refixed for three years at 2.25% and my repayments started on August 1st. I will ask kbc what the market rate was when I fixed so I'll know going forward. Will this market rate still be used by BOI to calculate breakage fees when they take it over next year?

Unfortunately the extra 300 is not part of my normal monthly payment. Kbc recalculated it after a lump sum payment and wrote to me about it (it was 350 less than what I'd like to be paying) but it was never applied so I am still paying the extra 350 monthly. I'll call them on Thursday. If the swap rate dropped below what it was when I fixed, would they inform me of that? Or automatically add any extra charge that might be due?

I am planning on saving that money anyway and then seeing if I can pay off another lump sum when the break fee is zero.
Thanks

Hi Paul, kbc said my mortgage rate was fixed on 18 August but they would not give me the wholesale rate for that day . Can I find out what that was? He said he thought they used reuters and Bloomberg paid service, similar to Euribor. Can I find out the eurobor rate on 18th August 2022?

He also said that if there is break fee charge it will be just deducted automatically without notification and taken from any excess payment made so I would not even see if it had happened.

I'd like to keep an eye therefore on when the wholesale rates might go down so I can change my payment to the minimum again.

RedOnion said:

Bank of Ireland: The greater of €65 or 10% of the normal repayment each month. However, this is done by increasing the monthly repayment, and can’t be paid in as a lump sum. There are examples on AAM of posters who have set up a monthly overpayment while on variable, and then being able to continue this once they have fixed, and got confirmation from BOI on same.

• Note that this overpayment limit ("10% of the the normal repayment each month") is much lower than "10% of the outstanding balance per year", which some other lenders offer
• I.e., Bank of Ireland offers less overpayment flexibility than the lenders that allow overpayments of "10% of the outstanding balance per year"

Click to expand...

I have been overpaying the maximum overpayment with BoI for about five years and have had three different fixed rates over the period.

I think it started at 10% but by now the "agreed overpayment" is 16% above what I calculate the "normal repayment" to be.

I am not sure how this happened exactly (and I haven't challenged it) but it seems that they don't apply their own rule very consistently.

RedOnion said:

U

AIB: No early repayments allowed without checking the break fee

• Note that because of a quirk in how AIB calculate break fees, if you are on their "green" fixed rate (and some other rates) you will be able to overpay by an unlimited amount without penalty for the foreseeable future. More details in this thread.

Click to expand...

I do make my monthly AIB overpayments (on a five years fixed rate) always without asking for the break fee . They check the break fee automatically after I did made the transfer .

Stitcher said:

kbc said my mortgage rate was fixed on 18 August but they would not give me the wholesale rate for that day . Can I find out what that was?

Click to expand...

My understanding is that they are obliged to show you the calculation behind a break fee quote. That suggests that if you ask for a break fee quote, you would be entitled to see the wholesale rates they used in the calculation.

Stitcher said:

He said he thought they used reuters and Bloomberg paid service, similar to Euribor. Can I find out the eurobor rate on 18th August 2022?

Click to expand...

I don't think so – the Bloomberg Terminal is generally only found in financial institutions and is really expensive. But swap rates are usually a good proxy for EURIBOR.

Thanks Paul, I'll ask for that calculation (I think I have already asked for it an they said no) and see if they give it to me this time. What they have said before is the break fees are all zero at the moment.

I pay my BOI fixed rate mortgage fortnightly and asked BOI to add max overpayment I am allowed of €65 per month to my ongoing payments.

I had a look now and it seems they have added €65 to each fortnightly payment instead of spreading it across the month!

I better not be charged a penalty as I only requested €65 a month and their system seems to have added it to each payment instead!

Anyone else see this with BOI?

Just to update here too.

My KBC mortgage has now moved to BOI. KBC allowed me overpay significantly every month, along with one off payments, despite surpassing the contractual limit i was entitled too. Any time they did the calculation for a fee it came back as zero. That's because I had fixed when rates were very low.

So, I have now asked BOI if I can overpay and they said they would look into my overpayment history and see if any fees apply. I am still hopeful that I can as the calculation should still return a fee of zero with current high rates, and I am anxious to pay off the mortgage in next year or two before 2.25 fixed rate ends and variable rate would apply.

Stitcher said:

Just to update here too.

My KBC mortgage has now moved to BOI. KBC allowed me overpay significantly every month, along with one off payments, despite surpassing the contractual limit i was entitled too. Any time they did the calculation for a fee it came back as zero. That's because I had fixed when rates were very low.

So, I have now asked BOI if I can overpay and they said they would look into my overpayment history and see if any fees apply. I am still hopeful that I can as the calculation should still return a fee of zero with current high rates, and I am anxious to pay off the mortgage in next year or two before 2.25 fixed rate ends and variable rate would apply.

Click to expand...

Would appreciate an update when they get back to you.

We're overpaying by about €500 each month. Have about six years left on fixed rate and will have overpaid by the maximum permitted in a few months. I know there should be no break free, but I'm hoping BOI will just continue taking the extra 500 each month. Rather than requiring us to formally request and accept a break fee (of zero) each time we want to overpay.