Penalties for breaking out of fixed rate mortgage

Scruff

Can anyone tell me what mortgage lenders typically charge for breaking out of a fixed rate mortgage?
2.5 years through a 5 year fixed rate mortgage and paying nearly 2% more on the current interest rate. bit redculous, first time buyer fook up.

spongebob

Name the lender

antoinolachtnai

They are basically going to charge you the loss. You can calculate this as something like:

(your fixed rate - the variable rate) * the size of the loan remaining in euros.

Theirs may be a different formula (they could try to hit you for more, to reflect more of the difference in actual payments).

You should ask them for a quotation on how much it would cost, and a quotation on what your monthly payments would be after breaking the fixed rate.

Be sure to work out whether it is actually worth your while, taking everything into account. You have to remember that rates are unlikely to drop from the current variable rate.

Also, if you were to wait before breaking the fixed rate, and the variable rate went up, the penalty would be less. Not that I think this is likely, but just so you know.

It sounds obvious, but you need to remember that moving to a floating rate makes you vulnerable to interest rate hikes again. Just something to consider!

Also, it is a possibility to move to a more current fixed interest rate. This would probably reduce the penalty you would have to pay.

It is important to work everything out. I once found a case where it was simply not worth breaking the 10 percent fixed rate, because the penalty payment wouldn't have been tax-deductible. (This was for a buy-to-let property.)

Scruff

The lender is EBS.

antoinolachtnai, Cheers for the advice. I know that rates arent likely to drop but it seems highly unlikely that they'll go up buy over 1% in 2 years, let alone 2.2%.
Your suggestion of moving to a more current fixed rate is intruiging. does this mean that we would be tied in to the new fixed rate for another 5 years or just for the remainder of our current one?

Also, if you were to wait before breaking the fixed rate, and the variable rate went up, the penalty would be less. Not that I think this is likely, but just so you know.

Yeah that makes sense but if you were to wait until then, the benefit of changing in the meantime would be less.

antoinolachtnai

You'd be locking in for a further 5 years (if it were a 5-year rate). Alternatively, you could tie in for a further 2 years at the 2 year rate. They have a range of rates for different terms. (http://ww3.ebs.ie/site/all/EBS+Rates?Opendocument)

Have a think about it and ask them to quote you for all the options that you think might work for you.

Scruff

one final question that after looking at that link i have confused myself on:

What exactly is the difference and significance between Rate and APR?
e.g.
5 Year Fixed :
Rate APR 15Y 20Y 25Y 30Y
4.35% 3.9% 7.57 6.25 5.47 4.98

antoinolachtnai

The APR is basically a standardized measure of interest charges, designed to allow comparison of interest rates between banks. It is supposed to take into account the total cost of lending.

The reason it is needed is because different banks calculate interest in different ways. As an example, if the same rate is compounded daily rather than monthly, you will end up paying considerably more interest over the course of the loan. APR takes this into account to give you one understandable figure.

APR is really the figure to watch, although it doesn't much matter, if you are comparing two rates from the same bank.

RainyDay

Don't fix unless you really need the security of a fixed payment each month (i.e. your lifestyle would be significantly impacted by an increase of €50 or €100 in your repayment). You won't beat the system - the banks build their margin & predictions into the fixed rate price.

Selik

I work for a bank and the penalty we charge for breaking a fixed rate is 6 months interest... Bad system imo as we can lose out sometimes and other times the customer can lose out. Also it seems a little ridiculous that a customer can be charged a six month interest penalty for breaking out of a rate of 3.13% when are standard variable rate is 3.53%... :eek:

Scruff

Holy mother of fook 6 months interest???

So on a 170,000 mortgage, where say i was on a fixed rate of 5.5% (:( ) ye'll charge me €4675???
christ **** on a stick. I think it'll be a case of pay the penalty and up tent and move mortgage to a different lender in protest.
or do ye have to pay another penalty there?
fooking banks.

btw why would you break out of a fixed rate if you were paying less than than variable rate? that makes no sense.

Seany

The penalty you pay can differ from week to week....depending on the cost of funds. Contact your bank at various times over a couple of weeks and see what the difference is.

BTW Try to haggle if possible....the fact that you are on a fixed rate might mean they have you by the short and curlys for the time being but in my experience there is always room to negociate with banks...