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Mortgage - low fee for breaking fixed rate

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  • Registered Users Posts: 51,059 ✭✭✭✭bazz26


    Gotcha.


  • Registered Users Posts: 19,545 ✭✭✭✭Cyrus


    Just to clear some things up I think people are confused by .

    There is a specific formula the banks are supposed to use to calculate your break fee from a fixed mortgage and it’s calculated on the interbank rate when you took out the loan v the day you request the cost for breaking.

    That fee is the same whether you are switching to another product with the same bank or moving to another bank.

    Obviously moving to another bank has other costs including valuation and solicitor fees.

    Two examples that I know of personally is one person who took a 700k mortgage with Ebs (variable rate) and got 2% cash back, switched to boi 4 months later and also got 2 % cash back (fixed rate) and then had a no fee break from boi 6 months later to move to ub getting 1,500 from them to cover switch costs and fix f at the 5 year 2.5% rate. Pretty easy net 25k or so.

    Another person had fixed at 3% with ub a few weeks before they brought out a 2.6% fixed rate, they wouldn’t move him , advised him to request a break fee, hey presto it was 0 so be broke and refixed at the lower rate and I believe did it again to get the 2 year 2.3%.

    All depends on interbank rates and if switching banks the size of your mortgage to see if it makes sense to do the switch for cash back etc


  • Registered Users Posts: 3,214 ✭✭✭cojomo2


    Am I reading that right? You've got a €145,000 mortgage, and 18 months left on it (ie: about €8,000 per month?).


    Surely, if you're doing such massive payments, you wouldn't care what the interest rate was, because you'll be paying a trivial amount anyway, at the speed with which you'd be blowing through the mortgage? :confused:
    18 months left on the fixed term.


  • Banned (with Prison Access) Posts: 144 ✭✭Marcus Rashford


    - Banks are now compelled to use a set methodology to calculate fixed mortgage break fees; with interest rates relatively low and base rates plus bank funding costs so low, the methodology tends to yield a favorable result

    - Some banks will pay up to 3% of the value of the mortgage to switchers (with the final 1% payable down the line)

    - Legal fees for a switch tend to be okay; €1,500 seems to be the typical number

    - There are people who have switched two or three times in the space of 6-12 months and pocketed the incentive each time


  • Registered Users Posts: 149 ✭✭KD11


    Went in to boi last week and was told the break out fee with less than a year left on a 5 year fixed term for a very small mortgage was €590. The person I was dealing with was shocked as she was expecting it to be a "couple of euro" at most. It annoyed me so much I'm now in the process of switching banks.


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  • Registered Users Posts: 3,214 ✭✭✭cojomo2


    KD11 wrote: »
    Went in to boi last week and was told the break out fee with less than a year left on a 5 year fixed term for a very small mortgage was €590. The person I was dealing with was shocked as she was expecting it to be a "couple of euro" at most. It annoyed me so much I'm now in the process of switching banks.

    I dont think its anything to do with BOI, as stated by another poster a specific formula is used to calculate..the amount to break will change daily depending on interbank rates.


  • Registered Users Posts: 11,460 ✭✭✭✭Ush1


    KD11 wrote: »
    Went in to boi last week and was told the break out fee with less than a year left on a 5 year fixed term for a very small mortgage was €590. The person I was dealing with was shocked as she was expecting it to be a "couple of euro" at most. It annoyed me so much I'm now in the process of switching banks.

    I had to pay I think 1200 before with UB to switch from one fixed to another but it still worked out cheaper in the long term.


  • Registered Users Posts: 113 ✭✭nok2008


    Hi,
    i have just changed my mortgage from AIB and BOI and my costs were;
    solicitor 1500
    valuation 150
    There were additional costs as i was putting on extension but they can be ignored for this conversation.

    I got cashback of 2% plus if i stay for 5 years i get another 1% back. Well worthwhile for me to do even if i do not stay for the 1%.

    For me i will be getting roughly 7k cashback (not including the 1%) which would mean that i would have to earn 14K before tax to earn this. If you divided that by the 15 hours work that i did it would effectively mean my gross wages per hour is effectively €933 per hour. WIsh my main job paid so well.

    My changeover was more complicated as we were building but i would estimate about 10-15 hours work in total. Other person in work rang around for herself but she changed rates with the bank that she was with over the phone in 5 mintutes and saving 100 per month.

    Big savings to be had though for small amount of work. However in order to make a "profit" you have to have a large mortgage. Looked at details for another person and they had smallish mortgage of 100k and no profit in moving even though drop in interest rate from 3.2% to 2.9%.

    Also what people have to be aware of is the lowish fixed rate interest rates out there. Some of the lower banks have higher variable, so when your say 2 year fixed is over and then you might have to change banks again and you may lose all your savings with the solicitor fees.

    Cant understand why more people dont look at these options, especially with Loan to value ratio with the massive increase in "valuation". We had nearly a 55% LTV and we were paying the higher >80% interest rate. NO solicitor fees for moving within the same bank.


    I am in month 2 of the mortgage and was looking at options for changing once my 1 year fixed is up (10 months time) but from this thread i can do it at relatively low cost which is great to know.


  • Registered Users Posts: 475 ✭✭flugel


    When switching Mortgage providers do you also have to take out a new mortgage protection policy?

    The original hardly stays valid as you are entering into new contracts with new mortgage providers each time?


  • Registered Users Posts: 2,671 ✭✭✭PhoenixParker


    cruizer101 wrote: »
    Its not separate at all, if moving bank it has to be taken into account. Generally the bigger saving will be by moving bank, and any cashback type offers will require moving bank also.

    You dont necessarily have to move bank though.

    I've lowered my rate twice by revaluing the house and getting a better ltv rate.

    Way less hassle then moving banks.


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  • Registered Users Posts: 113 ✭✭nok2008


    All you need to do is reassign your current mortgage protection to the new provider. A phone call to arrange and they send the documents out for signing. The new bank will try to get you to change but will more than likely be dearer as you are older and more risk.

    You will also have to assign the new mortgage provider to your house insurance.
    The above assumes no increase in amount being drawn down.


  • Registered Users Posts: 3,205 ✭✭✭cruizer101


    bazz26 wrote: »
    Another tip for paying less interest over the term of the mortgage is to look at paying a little extra every month off the capital amount borrowed, on top of your normal mortgage payment. Even if your in a fixed rate term you can still pay upto 10% extra of your monthly repayment without penalty.

    Jusr on this the amount you can pay of varies by bank I think the minimum would be 10% of monthly payment. But many are higher, UB who I am with you can overpay 10% of the remaining principle per year. So 300k mortgage you can overpay 30k per year, fair play to anyone who can reach that. I'm pretty sure KBC are the same and other banks may well be more than the 10% monthly.


  • Registered Users Posts: 12,235 ✭✭✭✭Cee-Jay-Cee


    Just a matter to note for people with BOI (or any other bank) wishing to break out of a fixed rate to a lower rate, the charge for breaking from a fixed rate depends on the markets for the day your application is processed. For example, I rang BOI a few minutes ago and there is no fee if you applied had your application granted today however next week there could be a charge (it shouldn't change too drastically unless there is some huge shift in the markets but with Brexit, god only knows what may happen) Anyway I have asked them to send me out the paperwork and will decide from there. I would save €20 a month dropping to the 2.9% rate from my current 3.1% rate which I've been in for the last 2 years. My fixed rate is due to end in October this year.


  • Registered Users Posts: 149 ✭✭KD11


    cojomo2 wrote: »
    I dont think its anything to do with BOI, as stated by another poster a specific formula is used to calculate..the amount to break will change daily depending on interbank rates.

    She did say that but had no idea why some people have to pay a few euro and others a few hundred euro. One customer wanted to break 6months into a 3yr term (€300,000) and it actually cost them zero. Like someone else mentioned it can change week by week what figure you get. If i have to pay that amount anyway, I may as well switch banks.


  • Registered Users Posts: 286 ✭✭th283


    nok2008 wrote: »

    Cant understand why more people dont look at these options, especially with Loan to value ratio with the massive increase in "valuation". We had nearly a 55% LTV and we were paying the higher >80% interest rate. NO solicitor fees for moving within the same bank..
    Does the LTV make a big difference in repayments? I took out a mortgage last year with a 90% LTV, renovated the house and going by comparable houses the LTV should be about 65% now, is it worth my while talking to BOI about it?


  • Registered Users Posts: 929 ✭✭✭sternn


    th283 wrote: »
    Does the LTV make a big difference in repayments? I took out a mortgage last year with a 90% LTV, renovated the house and going by comparable houses the LTV should be about 65% now, is it worth my while talking to BOI about it?

    Definitely contact the bank. Most people don't bother ever getting their house revalued for mortgage purposes. Banks generally offer better interest rates as the LTV gets lower.


  • Registered Users Posts: 465 ✭✭browne_rob5


    th283 wrote: »
    Does the LTV make a big difference in repayments? I took out a mortgage last year with a 90% LTV, renovated the house and going by comparable houses the LTV should be about 65% now, is it worth my while talking to BOI about it?

    Yes if your LTV is less than 80% you should drop to a lower interest rate.


  • Registered Users Posts: 113 ✭✭nok2008


    just checked there.
    The LTV makes no difference on fixed interest rates for BOI.

    However variable as below for BOI;
    <60% - 3.9%
    61-80 4.2%
    >80 - 4.5%

    https://personalbanking.bankofireland.com/borrow/mortgages/rate-table/


    I think that the difference is bigger for aib but check the websites if necessary.
    THere are some good mortgage broker sites out there that you can run through the difference options very easily as the bank websites are a bit clunky and harder to use and you will easily be able to see what the different repayments are. Only fee for moving internally in the bank miught be a valuation of 150.


  • Registered Users Posts: 872 ✭✭✭grahamor


    Are BOI likely to offer you a better rate if you are considering breaking out of a fixed rate and switching banks ?


  • Registered Users Posts: 145 ✭✭userfriendly


    Thanks for tip OP

    Tried today with KBC but would be over 2 grand to break but she said it changes daily so I should ring back in a week or two

    I should have asked when I was on the phone but anyone know if these market rates are publicly available?

    It's only a 5 min call but it would be useful to know when it's favourable to ring so less wasting everybody's time


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  • Registered Users Posts: 3,346 ✭✭✭randombar


    KD11 wrote: »
    She did say that but had no idea why some people have to pay a few euro and others a few hundred euro. One customer wanted to break 6months into a 3yr term (€300,000) and it actually cost them zero. Like someone else mentioned it can change week by week what figure you get. If i have to pay that amount anyway, I may as well switch banks.

    Examples taken from another site.

    Some worked Examples:
    Example 1 - I fix and I break immediately
    I fix my rate with Bank of Ireland today for 2 years at 3.2%.
    I decide 1 month later that I want to switch to EBS to get the 2% cash back from them.
    The rate BoI borrowed from the market last month, and the rate they can get for lending to the market today is the same, so there might be a marginal breakage cost.
    (In this case there might be a marginal breakage cost, as there are dealing costs in settling fixed rate contracts)


    Example 2 - The rates at which banks lend to each other fall
    I borrow €100,000
    I fix my rate with Bank of Ireland today for 2 years at 3.2%. BoI's funding rate in the market is 0%.
    After one year, I decide I want to switch to another lender.
    The one year inter-bank Market rate is now -0.4% in the market.
    Bank of Ireland can relend to the market at -0.4% instead of the 0% they borrowed at so the breakage fee is
    €100,000@ 0.4% x 1 year = €400

    Example 3 - rates rise
    I borrow €100,000
    I fix my rate with Bank of Ireland today for 2 years at 3.2%. BoI's funding rate in the market is 0%.
    After one year, I decide I want to switch to another lender.
    The one year interbank rate is now +0.25%.
    Bank of Ireland can relend at +0.25% instead of the 0% they originally borrowed for, so there is no cost to them, so there is no breakage fee to the customer.


  • Closed Accounts Posts: 7,728 ✭✭✭Former Former


    This isn't a bargain alert, it's consumer advice. This title of this thread should be "review your finances on a regular basis"

    The OP got a good deal because it was in the bank's interest to do so. He/she had one year left on a fixed rate. At the end of that year, he might have taken his business elsewhere, but by giving him a nice deal, the bank now has his business for another two years.

    If someone else rings up and they have three or four years left on a fixed rate, or wants to move to a different bank, there is a lot less incentive for the bank to do anything for them and they're not going to get as good a quote.

    So if you can find a better mortgage, get a reasonable fee to break your fixed rate and factor in legal fees etc - and still come out on top, then it's a bargain.


  • Registered Users Posts: 8,842 ✭✭✭Soarer


    I always thought thought those "2% cashback on drawdown" offers stated you had to stay with the bank for X years or the cashback would have to be repaid.

    But from reading this, you can change, get cashback, change, get cashback, ad infinitum?


  • Registered Users Posts: 24,211 ✭✭✭✭lawred2


    Soarer wrote: »
    I always thought thought those "2% cashback on drawdown" offers stated you had to stay with the bank for X years or the cashback would have to be repaid.

    But from reading this, you can change, get cashback, change, get cashback, ad infinitum?

    central bank pulled the plug on that practice

    as they did with unjustifiable/penal break fees


  • Closed Accounts Posts: 4,121 ✭✭✭amcalester


    The OP got a good deal because it was in the bank's interest to do so. He/she had one year left on a fixed rate. At the end of that year, he might have taken his business elsewhere, but by giving him a nice deal, the bank now has his business for another two years.

    If someone else rings up and they have three or four years left on a fixed rate, or wants to move to a different bank, there is a lot less incentive for the bank to do anything for them and they're not going to get as good a quote.

    So if you can find a better mortgage, get a reasonable fee to break your fixed rate and factor in legal fees etc - and still come out on top, then it's a bargain.

    The bank didn't give the OP a deal, the cost to break would have been the same if he was moving to another bank or staying with his existing.

    Banks have no control over how much it costs to break a fixed term mortgage


  • Closed Accounts Posts: 4,121 ✭✭✭amcalester


    Soarer wrote: »
    I always thought thought those "2% cashback on drawdown" offers stated you had to stay with the bank for X years or the cashback would have to be repaid.

    But from reading this, you can change, get cashback, change, get cashback, ad infinitum?
    lawred2 wrote: »
    central bank pulled the plug on that practice

    as they did with unjustifiable/penal break fees

    The banks changed the structure of their cash back offerings, instead of 3% upfront and a clawback it's now 2% upfront and 1% after 5 years.


  • Registered Users Posts: 8,842 ✭✭✭Soarer


    lawred2 wrote: »
    central bank pulled the plug on that practice

    as they did with unjustifiable/penal break fees

    Cheers lawred2.

    So you could, in theory, swap every couple of months without penalty?

    Also, just for complete pig iron....
    January, I move from AIB to BOI, get cashback.
    July, I move from BOI to EBS, get cashback.
    January, I move from EBS to KBC, get cashback.
    July, I move BACK to AIB from KBC....get cashback?


  • Registered Users Posts: 929 ✭✭✭sternn


    This isn't a bargain alert, it's consumer advice. This title of this thread should be "review your finances on a regular basis"

    The OP got a good deal because it was in the bank's interest to do so. He/she had one year left on a fixed rate. At the end of that year, he might have taken his business elsewhere, but by giving him a nice deal, the bank now has his business for another two years.

    If someone else rings up and they have three or four years left on a fixed rate, or wants to move to a different bank, there is a lot less incentive for the bank to do anything for them and they're not going to get as good a quote.

    So if you can find a better mortgage, get a reasonable fee to break your fixed rate and factor in legal fees etc - and still come out on top, then it's a bargain.

    After doing a bit more research, the EU directed the banks to change the way they calculated the breakage for those in a fixed rate loan back in December 2017. The EU directive means banks can only charge a penalty based on what they would earn from keeping the mortgage funds on deposit. Anyone looking at deposit interest rates at the moment will see that they are extremely low. Not all banks have to change the way they calculate a break fee, but BOI are one of those that have done so.

    Obviously those who have a longer fixed rate period and bigger mortgage value will pay more. But if the bank uses this method of calculation and the drop in mortgage interest rate is somewhat significant, the savings in interest being paid will outweigh the charges.

    Yes, this is not a "bargain" by your definition, but it should be made aware to people as it's a 5 minute phone call, signing a letter that is posted out to you by the bank, that may potentially save someone / a couple a decent amount in interest per month.

    I think most people would agree that if you had to pay less money to a bank by following a couple of steps that they were not aware of, then it is a bargain.


  • Registered Users Posts: 4,069 ✭✭✭relax carry on


    Currently switching to a lower fixed rate of 2.9% for 5 years after breaking out of 7 year fixed at @3.99%. am currently 2.5 years in to the 7 year rate. It's costing 1500 with Ulster Bank but the savings over 5 years are just over 5000. Will use the additional savings to overpay @ 10% each month to increase the savings.

    Will look at this every year from now on.


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  • Registered Users Posts: 24,211 ✭✭✭✭lawred2


    Soarer wrote: »
    Cheers lawred2.

    So you could, in theory, swap every couple of months without penalty?

    Also, just for complete pig iron....
    January, I move from AIB to BOI, get cashback.
    July, I move from BOI to EBS, get cashback.
    January, I move from EBS to KBC, get cashback.
    July, I move BACK to AIB from KBC....get cashback?

    if the rates are in your favour then yes


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