Breakage Rates

godtabh

KBC have been given me a breakage rate. It seems very high. I asked for their calculation and the refused and referred me to the formulae on their website

The website says the following:

B = (W-M) x T/ 12 x A where: B=the Break Funding Fee.
W=the Wholesale Rate prevailing at the date of the existing fixed rate applying to the loan was set.
M=the Wholesale Rate prevailing at the switching/redemption rate for the unexpired time period of the Fixed Rate period.
T=Period of time in months to the end of the Fixed Rate period.
A=Principal amount which is subject to the existing fixed rate and which is being switched or redeemed

Can any one confirm what is meant by the whole sale rate at fixing and the whole sale rate at redemption?

We are moving with KBC (old mortgage KBC/new mortgage KBC) and we assumed that there wad no breakage fee. It states that it maybe charged on their website and there was no mention of it until drawdown. The breakage fee is so large it puts us in to the red

cmssjone

godtabh wrote: »

KBC have been given me a breakage rate. It seems very high. I asked for their calculation and the refused and referred me to the formulae on their website

The website says the following:

B = (W-M) x T/ 12 x A where: B=the Break Funding Fee.
W=the Wholesale Rate prevailing at the date of the existing fixed rate applying to the loan was set.
M=the Wholesale Rate prevailing at the switching/redemption rate for the unexpired time period of the Fixed Rate period.
T=Period of time in months to the end of the Fixed Rate period.
A=Principal amount which is subject to the existing fixed rate and which is being switched or redeemed

Can any one confirm what is meant by the whole sale rate at fixing and the whole sale rate at redemption?

We are moving with KBC (old mortgage KBC/new mortgage KBC) and we assumed that there wad no breakage fee. It states that it maybe charged on their website and there was no mention of it until drawdown. The breakage fee is so large it puts us in to the red

I thought my breakage fee was suspiciously high as well. I wanted it sent by email but they would only contact me by phone. It also took them over 3 weeks to come up with a figure. I had 8 years left on a 10 year fixed and I would love to know what numbers they stuck in the calculation. If anyone could provide the values for W and M above, it would be much appreciated.

Browney7

godtabh wrote: »

KBC have been given me a breakage rate. It seems very high. I asked for their calculation and the refused and referred me to the formulae on their website

The website says the following:

B = (W-M) x T/ 12 x A where: B=the Break Funding Fee.
W=the Wholesale Rate prevailing at the date of the existing fixed rate applying to the loan was set.
M=the Wholesale Rate prevailing at the switching/redemption rate for the unexpired time period of the Fixed Rate period.
T=Period of time in months to the end of the Fixed Rate period.
A=Principal amount which is subject to the existing fixed rate and which is being switched or redeemed

Can any one confirm what is meant by the whole sale rate at fixing and the whole sale rate at redemption?

We are moving with KBC (old mortgage KBC/new mortgage KBC) and we assumed that there wad no breakage fee. It states that it maybe charged on their website and there was no mention of it until drawdown. The breakage fee is so large it puts us in to the red

What date did you fix? German 10 year bond yields plus a margin would be a good proxy for the wholesale rate. https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/euro_area_yield_curves/html/index.en.html put in a range of dates to see how the yield curve has moved in terms or its level and its shape.

Effectively, if you fixed three years ago for ten years you agreed to pay a margin over the funding rate to the bank over ten years. The bank's agreement with you is now extremely in the money from the banks point of view and they're able to get their hands on all this free printed money swashing around that has been freshly printed which has to find a home. They can borrow for the remaining term of your fixed mortgage at a rate much lower than they could when you entered the fixed agreement. If things were equal, you'd be able to refinance at a rate much lower than available in the market but banks are charging what they are able to get.

What % have you been quoted as a fee? 4 or 5% of principal?

godtabh

It’s 2.65% of the principal. The amount appears to be 1 years worth of interest. Breaking a 5 year fixed after 2 years. Fixed again for 3 years with same back.

Smee_Again

godtabh wrote: »

KBC have been given me a breakage rate. It seems very high. I asked for their calculation and the refused and referred me to the formulae on their website

The website says the following:

B = (W-M) x T/ 12 x A where: B=the Break Funding Fee.
W=the Wholesale Rate prevailing at the date of the existing fixed rate applying to the loan was set.
M=the Wholesale Rate prevailing at the switching/redemption rate for the unexpired time period of the Fixed Rate period.
T=Period of time in months to the end of the Fixed Rate period.
A=Principal amount which is subject to the existing fixed rate and which is being switched or redeemed

Can any one confirm what is meant by the whole sale rate at fixing and the whole sale rate at redemption?

We are moving with KBC (old mortgage KBC/new mortgage KBC) and we assumed that there wad no breakage fee. It states that it maybe charged on their website and there was no mention of it until drawdown. The breakage fee is so large it puts us in to the red

The wholesale rate is at fixing is the interbank rate when you fixed your mortgage versus the interbank rate now.

I’m not sure if this is easily found but you can work backwards and find the delta between the 2 which will at least guide on whether it’s correct.

godtabh

Am I reading this correctly?

Euro area yield curves

5 years -0.157764 -0.809979 (Dec 2018, Dec 20220) - What would the margin be?

Geuze

Put the query on AAM, good lads there, they know more.

https://www.askaboutmoney.com/forums/the-switchers-forum.149/

Browney7

godtabh wrote: »

Am I reading this correctly?

Euro area yield curves

5 years -0.157764 -0.809979 (Dec 2018, Dec 20220) - What would the margin be?

So in that case, the rate for a bank to borrow is -0.65% lower now. But you also have to factor in that the applicable rate now is a 3 year rate as opposed to five. Interest rates tend in pretty much all cases to be higher for longer durations (not always the case as market forces can distort things at longer terms). So the rate you'd be looking at now is a three year rate so that might be something like minus 0.9% for example. Obviously actual figures may differ and the rates we are discussing won't be directly applicable here but illustrate the point. The 2.65% could be a coincidence or the charge may be capped at a years' interest as you describe.

Cash_Q

godtabh wrote:

We are moving with KBC (old mortgage KBC/new mortgage KBC) and we assumed that there wad no breakage fee. It states that it maybe charged on their website and there was no mention of it until drawdown. The breakage fee is so large it puts us in to the red

Throughout the application process we were assured there would be no breakage fee as we were sticking with KBC, then the loan offer came through and it was almost 5k. Tried to query it because we had been told it wouldnt apply and I was then just told that I shouldnt have been told what I was told. We had no time to spare in querying it so it was just paid when clearing the mortgage but in the new year I'm going to request all phone call recordings and compile a complaint about it. We are going to be in the red once solicitor fees hit whereby we would have been fine without this charge. They're not going to refund it by me complaining and of course they're within their rights to charge it as we broke a 5 year fix after 2.5 years, but it is so much money it really was a shock to the system.

godtabh

Cash_Q wrote: »

Throughout the application process we were assured there would be no breakage fee as we were sticking with KBC, then the loan offer came through and it was almost 5k. Tried to query it because we had been told it wouldnt apply and I was then just told that I shouldnt have been told what I was told. We had no time to spare in querying it so it was just paid when clearing the mortgage but in the new year I'm going to request all phone call recordings and compile a complaint about it. We are going to be in the red once solicitor fees hit whereby we would have been fine without this charge. They're not going to refund it by me complaining and of course they're within their rights to charge it as we broke a 5 year fix after 2.5 years, but it is so much money it really was a shock to the system.

Sounds like we are in the exact same position.

I spoke with a family member who works on the regulation side of things for another bank but not on mortgages.

They said that KBC should be more transparent in their outlining of cots particularly when it comes conditions attached to the loan offer.

Looks like we will have to pay it and complain after.

godtabh

Using this page

https://tradingeconomics.com/ireland/interbank-rate

the rate in Nov 2018 is c -0.316% and now its c -0.526%. By my calcs, the cost of redemption to KBC is a 1/4 of what they are charging.

That also densest take into account that we will be signing up to another 3 year fixed so the acutal loss to KBC is a 10th of what they are charing.

Marcusm

5 yr EUR swap rate on 14-12-18 was 0.268%.

3 yr EUR swap rate on 14-12-20 was -0.542%

The shortfall on the bank’s side is 0.81% for 3 years meaning by breaking the fixed deal the bank will forego approx 2.4% of the principal. (Approx as there is a discount effect and the principal is amortising.)

If the breakage being sought is 1.0% then you are getting a better deal than would be available on a non-consumer loan!

godtabh

Marcusm wrote: »

5 yr EUR swap rate on 14-12-18 was 0.268%.

3 yr EUR swap rate on 14-12-20 was -0.542%

The shortfall on the bank’s side is 0.81% for 3 years meaning by breaking the fixed deal the bank will forego approx 2.4% of the principal. (Approx as there is a discount effect and the principal is amortising.)

If the breakage being sought is 1.0% then you are getting a better deal than would be available on a non-consumer loan!

What is your source for this?

Marcusm

godtabh wrote: »

What is your source for this?

Source for what; the basis for calculating breakage on non-consumer loans? Or for the swap rates?

If for the swap rates then I would generally look to ICE benchmarks.