Key Post Understanding Fixed Rates breakage costs

Thanks for that. Yeah i was thinking it was the 10 years that was the issue. If you get a chance could you post a link to view the 10 year rate so I can keep an eye on it. Appreciate you taking the time to advise
 
Approximation of rate movements:

I don't have access to real bank funding rates, so I use corporate swap rates as an approximation when estimating break fees for posters.
Note: these are not the same as interbank rates, but they move in the same direction. I haven't found a material difference in any recalculation I've done for anyone yet.

The following has free access, and you can select date you want to see:
https://www.theice.com/marketdata/reports/180
 
Hi Guys,

I have recently signed a approval in principal letter and awaiting offer letter for 14 year term with 10 year fixed interest with BOI. after reading all the suggestions here i am worried now, if i have to switch the lender from this fixed rate contract after an year. it might cost me at least 5K? is that corretc.

Lets say i am borrowing 260K from them. please let me know can i request them to change the term and fixed years at this stage?
 
safnha said:
Hi Guys,

I have recently signed a approval in principal letter and awaiting offer letter for 14 year term with 10 year fixed interest with BOI. after reading all the suggestions here i am worried now, if i have to switch the lender from this fixed rate contract after an year. it might cost me at least 5K? is that corretc.

Lets say i am borrowing 260K from them. please let me know can i request them to change the term and fixed years at this stage?
Click to expand...

There should be a cooling off period in your documentation. Break fees are dependant on the market rate of interest at the time you break, so its impossible to predict how much your fee will be. Look at the break formula and do some sample calculations. Why would you "have to switch" lender after a year?

In taking out a 10 year fix, you are effectively buying insurance for yourself, against interest rates rising over the next ten years. Is that what you are trying to do? In any event don't drawdown the mortgage and the term wont start.
 
Itchy said:
There should be a cooling off period in your documentation. Break fees are dependant on the market rate of interest at the time you break, so its impossible to predict how much your fee will be. Look at the break formula and do some sample calculations. Why would you "have to switch" lender after a year?

In taking out a 10 year fix, you are effectively buying insurance for yourself, against interest rates rising over the next ten years. Is that what you are trying to do? In any event don't drawdown the mortgage and the term wont start.
Click to expand...
Thanks.. yes more or less i wanted fixed rate for maximum of my term and i wanted short term to pay off quickly and with less overall interest on the loan. I will request for a change of contract but i might upset the under writers, whats what sales guys told who is dealing with my application.
 
Hi guys,

First of all, thanks for the valuable info that you provide to help us save money.

I'm with permanent TSB and would like to make sure they won't exceed the max breakage cost:

mortgage withdrawn October 2018
amount borrowed: €160,000 for 25 years
3.1% 3-year fixed

Now, as of October 2019, remaining capital is €156,000
I also saved €26,000 that I'd like to pay as a lump sum and switch to another lender

Here is how I calculated this max breakage cost:

1- amount borrowed: €160,000
2-
the difference between the rate the bank was able to borrow money at for the original term in the inter-bank markets, minus what they can get for depositing the money in the inter-bank markets for the remaining term
According to https://www.theice.com/marketdata/reports/180
rate was 0.07 for 3 years the 15 October 2018
rate is -0.455 for 2 years the 10 October 2019
(not sure whether I picked up the right data)

3- remaining term: 2 years


€160,000@ (0.07-(-0.455))% x 2 years = 1680€

Does this look correct?

Next step will be to calculate this max breakage cost with PTSB own formula

Thanks
 
SpringOnion said:
Does this look correct?
Click to expand...
Almost spot on. It's based on current balance rather than initial, but it's only a few euro different.
I haven't seen any errors on any PTSB ones I've reviewed - they're transparent in the rate they use being market swap rates.

To switch, you'll need an effective rate under 2.6% to break even. Alternatively you could overpay the lump sum and just pay break fee on that.
 
RedOnion said:
It's based on current balance rather than initial.
...
Alternatively you could overpay the lump sum and just pay break fee on that.
Click to expand...

Thanks for the clarification and quick feedback, makes sense now.

I've just started a new job and cannot switch at the moment because of the 6 month probation.

I'd go for the lump sum overpayment then.

I saved €26,000, breakage cost can't be more than €26,000@ (0.07-(-0.455))% x 2 years = 273€, is this correct?

I am also assuming that this lump sum will be deducted from the capital, i.e. €156,000-€26,000 = €130,000?

Then, how it works with the bank? I'd like to keep my monthly payment of 760 euro and reduce the term, is this possible?

Can we change these parameters while still on fixed rate?

I read my loan mortgage conditions and found nothing about it.
 
Springers said:
I saved €26,000, breakage cost can't be more than €26,000@ (0.07-(-0.455))% x 2 years = 273€, is this correct?
Click to expand...
Correct

Springers said:
I am also assuming that this lump sum will be deducted from the capital, i.e. €156,000-€26,000 = €130,000?
Click to expand...
Correct

Springers said:
Then, how it works with the bank? I'd like to keep my monthly payment of 760 euro and reduce the term, is this possible?

Can we change these parameters while still on fixed rate?
Click to expand...
You should be able to keep repayment amount the same since you're paying a break fee on the 26k. I've not seen anything specific in any of the banks terms about this. Ordinarily you wouldn't be able to change the terms like this, but I can't see why not when it's due to an overpayment.

There may be a technical issue with PTSB systems in that if you were to overpay they might not identify it and apply a break fee. But don't rely on it.
 
RedOnion said:
You should be able to keep repayment amount the same since you're paying a break fee on the 26k. I've not seen anything specific in any of the banks terms about this. Ordinarily you wouldn't be able to change the terms like this, but I can't see why not when it's due to an overpayment.

There may be a technical issue with PTSB systems in that if you were to overpay they might not identify it and apply a break fee. But don't rely on it.
Click to expand...

Thanks!! I'll make an appointment and see how it goes.
 
just called permanent TSB and at the moment, there's no breakage fee for a lump sum!!

mortgage withdrawn October 2018
amount borrowed: €160,000 for 25 years
3.1% 3-year fixed
Now, as of October 2019, remaining capital is €156,000
€26,000 savings that are sitting

I am on probation now for 6 months (got promoted within the same company) and cannot switch. The best decision (and only?) will be paying a lump sum now.
I'll have then a capital of €130,000, will keep my monthly payment of €760 and reduce the term by 5 years!! not done the calculation yet to check the amount I will save
 
Can someone help out with what the interbank lending rate should be or it's impact on a breakage fee. I am in a 5 year fixed with UB @3.9%. Fixed period ends December 2020. mortgage value was 238K, have €219 left to pay. Had rang UB and the advisor (not a mortgage specialist) said it tended to be just 6 months interest as standard.
 
Kevin Byrne said:
Can someone help out with what the interbank lending rate should be or it's impact on a breakage fee. I am in a 5 year fixed with UB @3.9%. Fixed period ends December 2020. mortgage value was 238K, have €219 left to pay. Had rang UB and the advisor (not a mortgage specialist) said it tended to be just 6 months interest as standard.
Click to expand...

You have to call them up and ask for a worked example which should detail bank's own funding cost when the mortgage was fixed, and the interest rate the bank would receive for putting the same amount on deposit today for the remainder of the fixed period.

I am with BoI and they will tell you over the phone, and a worked example comes after about a week in the post.

Post the details here and you'll get help, but without this it's too hard to know.
 
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 (2.95%) 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?

All advice greatly appreciated.
Thanks
 
Kevin Byrne said:
said it tended to be just 6 months interest as standard.
Click to expand...
Hi Kevin,
Ulster Bank cap their break fee at 6 months interest, so it's never more than that. Interbank rates have fallen this year, so break fees are a bit high.
The 6 months would kick in in your case.

Let me know if you need any more help.
 
Hi All,

Is there anyway I can determine the best way to make a decision on taking a €470K mortgage on a 3 year fixed (2.7%) with PTSB versus a 1 year fixed (3.2%) with PTSB?

The reason I am considering the 1 year fixed is to enable me to break the fixed term in the near future in order to move bank for a considerable amount of cashback. If I chose the 3 year fixed the break fee could be much much higher and I will not be able to move banks. I am trying to figure out 3 year fixed versus 1 year fixed would there really be a huge difference in the break fee if I break after say 6 months time.

Thanks a mil!
 
@Edward33
I think you're overthinking this, and trying to be too clever. Why PTSB to start, if you're planning to switch anyhow?
If it's a new mortgage, it's unlikely (but not impossible) that you'll be able to switch anywhere without being able to show 12 months repayments. So, you should plan on being with 1st lender for 12 months.

Note: there's no guarantee that cashback will still be on offer from any lender in 12 months. So you're playing with a risk of high break fee, or being stuck in a high rate if you don't switch.
 
RedOnion said:
@Edward33
I think you're overthinking this, and trying to be too clever. Why PTSB to start, if you're planning to switch anyhow?
If it's a new mortgage, it's unlikely (but not impossible) that you'll be able to switch anywhere without being able to show 12 months repayments. So, you should plan on being with 1st lender for 12 months.

Note: there's no guarantee that cashback will still be on offer from any lender in 12 months. So you're playing with a risk of high break fee, or being stuck in a high rate if you don't switch.
Click to expand...
Thanks a mil!

The reason I am starting with PTSB is because they have the best fixed rate of all the banks who also offer cashback. The cashback is €9,400 and the fixed rate is 2.7% for new customers who are below 80% LTV. The 3 year fixed rate at 2.7% is the lowest of the banks that do cashback and that is still not including PTSB do also do 2% cashback on a monthly basis also so it is even cheaper. I cannot think why I would start with any other bank and given I want the cashback. Unless I am missing something from the other banks (BOI/EBS/KBC). That is why the decision I am really only considering now is how long should I fix for which again I understand no one can answer as it depends on future rates.

I see it simply as it depends on a persons risk nature. You take the risk and go 1 year fixed. Your monthly payments are higher for that first year. You are risking the cashback is still there and then you move with no break fee and you receive another €9.400 in 12 months time (less off course solicitor fees, valuation needed etc). The risk will be that the rates obviously go up and also the cashback offer is no longer on the table. The reward is possibly another €6-7K which is a lot of money within 12 months in cashback.

Let me know if you think I am way overthinking this or if you have another thought that I have not considered?


Thanks again!
 
How do u work out the rate is there 4.5 years left in yr fixed term? Do they take the mid point of the 4 & 5 year ordo they round up to 5 or down to 4?
 
@BourbonWithIce
It depends on the bank. I think AIB uses both, and gives the most beneficial. Some banks interpolate rates (i.e. use both 4 & 5 year to calculate a 4.5 year rate)
Personally when I'm estimating break costs here, I would round down to 4 years.
 
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