Fixed Rates Breakage costs

mactheknife19

I'm likely to take a 3 year Fixed Rate on my AIB mortgage this week (2.85 <50% LTV) as the different between that and my Variable is 0.1%. This is mostly for peace of mind. I've potential to get a lump sum in the next 12-18 months and which I'd would like to possibly pay off a lump sum. So, I understand the breakage cost calculation as of today's figures. But if IR's (including the interbank) were to increase rapidly would there be a point where if I could pay a lump sum then it would be beneficial for the bank to allow me to do it without a break free. In theory I wouldnt be looking to change the rate at that time, just pay down.

Q&A

https://www.boards.ie/discussion/2058272176/fixed-rates-breakage-costs

In short the answer is yes.

Break fees are basically regulated so that they can only charge you what the lender is out of pocket. If interbank rates go up - they earn more for depositing at that time then when you drew your mortgage down - then the bank is not out of pocket. So neither should you.

walterking

correct.

In nearly all present cases where people are breaking out of fixed rates agreed in the last 2-4 years and refixing, the break fee is zero.

I don't think you will regret 2.85%. The peace of mind value alone is good and its unlikely you will have rates below this anytime soon.

Even if rates did drop, the break fee would be minimal as the room to drop is miniscule even in the best case scenario

phormium

If you break to pay the lump sum will you be wanting to fix again for the remaining time and if so do you get the same rate back or will have to go with rates on the day whatever they may be?

walterking

https://www.boards.ie/discussion/comment/119888573#Comment_119888573

If you break a fixed rate, that is gone.

You then choose whatever current rate is available.

Very unusual situation at present in that some 5 year fixed rates are CHEAPER than a 5 year fixed rate from 2 or 3 years ago and ECB are 2% higher.

So as cost of funds are higher there is no break fee and you can have additional comfort of payment certainty for the next 5 or more years

And as you know the current rate, you can make a decision without risk

Q&A

https://www.boards.ie/discussion/comment/119888573#Comment_119888573

You can break all or part of a fixed rate mortgage.

So only break/overpay the amount you can and leave the balance fixed at the original rate.

phormium

https://www.boards.ie/discussion/comment/119892454#Comment_119892454

Never heard of that, interesting.

masterboy123

https://www.boards.ie/discussion/comment/119892454#Comment_119892454

I doubt it's possible.

walterking

https://www.boards.ie/discussion/comment/119893400#Comment_119893400

It absolutely is possible.

If your have 200k balance and its on a fixed rate and want to pay off 50k lump sum, the bank will work out a break fee for that 50k only

masterboy123

https://www.boards.ie/discussion/comment/119893424#Comment_119893424

I believe it will depend on your lender and agreement.

Q&A

https://www.boards.ie/discussion/comment/119893400#Comment_119893400

https://www.boards.ie/discussion/comment/119893613#Comment_119893613

Every lender gives you the opportunity to repay either all or part of your mortgage early. Yes there may be a break fee but that's a function of the opportunity cost that the lender face.

If you have €100k fixed mortgage and you want to repay €30k. The break fee will only apply to the €30k. You won't lose your fixed rate on the €70k.

Going back to the OP example, the wording on the AIB website acknowledges partial repayment.

https://aib.ie/help-and-guidance/mortgages-faq/what-is-fixed-rate-mortgage-breakage-costs

masterboy123

https://www.boards.ie/discussion/comment/119894087#Comment_119894087

I got break fee twice from AIB and it was on the full remaining amount.

Do you have to inform them about a specific amount? Say 20k?

Q&A

https://www.boards.ie/discussion/comment/119894260#Comment_119894260

Yes, I think that would be the case. Unless you ask for a specific amount I think they all tend to default to the break fee on the full amount.

walterking

https://www.boards.ie/discussion/comment/119894260#Comment_119894260

Yes, you simply say that you wish to pay €xxxx off and would like a break fee for that payment.

Many will allow you pay up to 10% off every year without any penalty - that's where you may be thinking of it depending on the bank

mactheknife19

https://www.boards.ie/discussion/comment/119898233#Comment_119898233

Would that 10% rule be in the T&C's or would it just be something you'd need to request in writing.

As I got the 2.85% in time would they look to force me to refix (likely at a higher rate)

Basically I guess what I'm looking understand would they let me pay the 10% (no break fee) and keep the 2.85.

And is there even a point where rates increase further that they will agree to above with a larger then 10% lump sum payment

walterking

https://www.boards.ie/discussion/comment/119999868#Comment_119999868

Its in their T&Cs on fixed rates