Cost of Breaking fixed rate mortgage

Troy McClure

We are looking at the KBC fixed rate mortgage 3% for 10 years. Maybe a 70/30 split fixed/variable. We are currently on variable rate of 3% with KBC.

I was asking KBC in event we could pay off a lump sum, what would be the cost for paying down on the fixed rate part, if the variable part is already paid off.
What kind of penalty would be charged by the bank? Anyone have any experience of breaking a fixed rate such as this?

KBC said they can't tell me and I would have to calculate it myself which we find a bit lazy on their behalf. 10 years is a long time and we are just trying to make a fully informed decision, to have a ballpark figure of the repercussions.
Thanks

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Troy McClure wrote: »

KBC said they can't tell me

You can be sure if you take the loan and pay it off early KBC will not be long figuring it out. From the few dealings I've had with banks of late the level of service has gone to the dogs.

Can't help you with your question but presumably the bank have given you a draft mortgage terms & conditions that outlines they early payment penalties. Otherwise how would you be expected to calculate any penalties?

Wheety

Depends on how much you're paying. You're allowed over pay 10% of the total of the fixed portion without penalty. This is based on the balance of the fixed rate at the time of fixing. Then you can use a formula for figuring out the penalty after that.

There should be no fee for clearing the variable side.

Why not fix for 5 instead? Very similar rates if I recall correctly. Or go 50/50.

I think you need to think about it a bit more. Are you expecting a lumpsum to come to you?

mugsymugsy

Troy McClure wrote: »

We are looking at the KBC fixed rate mortgage 3% for 10 years. Maybe a 70/30 split fixed/variable. We are currently on variable rate of 3% with KBC.

I was asking KBC in event we could pay off a lump sum, what would be the cost for paying down on the fixed rate part, if the variable part is already paid off.
What kind of penalty would be charged by the bank? Anyone have any experience of breaking a fixed rate such as this?

KBC said they can't tell me and I would have to calculate it myself which we find a bit lazy on their behalf. 10 years is a long time and we are just trying to make a fully informed decision, to have a ballpark figure of the repercussions.
Thanks

Hi Troy McClure I think I know you from films such as...

The reason they are saying is that they don't know what the interbank rate will be in the future i.e at the point at which the loan you may want to pay off or remortgage.

They should be able to give you what the mathematical calculation is. In essence it's the difference in the interbank rate between when you took out the mortgage against what it is now multiplied by the number of months left on the loan.

Also make sure you out things in writing and follow up. I had numerous phone calls with KBC where little action took place. When things went to complaints and in writing things moved faster. Lesson learnt for me!

Best of luck

Troy McClure

mugsymugsy wrote: »

The reason they are saying is that they don't know what the interbank rate will be in the future i.e at the point at which the loan you may want to pay off or remortgage.

They should be able to give you what the mathematical calculation is. In essence it's the difference in the interbank rate between when you took out the mortgage against what it is now multiplied by the number of months left on the loan.

Best of luck

And in fairness that's what they have said to me. However what I asked them for is to use the interbank rate for today (Or an average for the last ten years maybe), to tell me what would it be if the situation occurred 3,5, and 7 years into the 10 year term. This gives me good indicators to go on. They have the rest of the info needed.

Surely they have better people to be able to give me ball park figures than for kbc to throw formula's at me!

I have no idea if it's hundreds or thousands or just two euro. Am only looking for broad based figures from them!

dotsman

As mugsymusgsy has said, no bank will be able to tell you as it will depend on a number of variables. All they can do is give you the formula.

Couldn't find the formula on KBC's website, but it should be similar to the one on the AIB website here:

AIB wrote:

Make a partial out-of-course repayment.

The formula to calculate the early breakage cost is: (A) x (U) x (D%) = early breakage cost
Definition of terms used in this formula: (A) the amount of the premature payment or balance of the mortgage loan at date of conversion to another rate. (U) Unexpired period is the period remaining to the end of the original fixed interest rate period. (D%) Difference in interest rate is the difference between the fixed interest rate applicable at the start of the fixed interest period and the fixed interest rate applicable as at date of premature payment/conversion, for the unexpired fixed interest rate period.

Worked Example: A = € 100,000 the amount of the premature payment or balance converted to another rate
U = 2 years (24 months) on basis you fixed for 5 years (60 months) and are now breaking out of fixed rate after 3 years (36 months) D = 2% on the basis you fixed at a 5 year rate of 5.25% and the fixed rate for the unexpired period (i.e. 24 months) is 3.25%. So, applying the formula A x U x € 100,000 x 24/12 x 2% = € 4,000

mugsymugsy

Troy McClure wrote: »

And in fairness that's what they have said to me. However what I asked them for is to use the interbank rate for today (Or an average for the last ten years maybe), to tell me what would it be if the situation occurred 3,5, and 7 years into the 10 year term. This gives me good indicators to go on. They have the rest of the info needed.

Surely they have better people to be able to give me ball park figures than for kbc to throw formula's at me!

I have no idea if it's hundreds or thousands or just two euro. Am only looking for broad based figures from them!

Ok mine was going approx 400 euro. Took out mortgage 5 years ago had 3 years left. Went back to them a month later and because the rate had changed ended up costing me zero! No joke had 3 years left. Moved from 3.85% to 2.99% on 10 year fixed. Only cost I had to pay was re valuation for estate agent. Saving over 10% per month compared to previous fixed rate.

Ask them what the interbank rate is now and what it was was a year ago and ask them to do the calcs for you or do them yourself.

mugsymugsy

I'll dig out the paper work and post the calc on here for KBC. Though they really should tell you this and tell you what the current interbank rate is

Wheety

They're not going to spend time doing up a load of hypotheticals for you. You can do it yourself with the formula.

Troy McClure

Wheety wrote: »

They're not going to spend time doing up a load of hypotheticals for you. You can do it yourself with the formula.

I really don't see why not. I am a customer on all fronts with them.

Thanks Mugsy that was helpful

Wheety

Troy McClure wrote: »

I really don't see why not. I am a customer on all fronts with them.

Thanks Mugsy that was helpful

You said yourself 'I have no idea if it's hundreds or thousands or just two euro' and 'if the situation occurred 3,5, and 7 years into the 10 year term'.

This is not much to go on to have a staff member spend time on it.

I'm pretty sure I've seen a spreadsheet with this set up on it before. If i find it, I'll post it and you can just input the figures.


I'm with KBC and have fixed for a few years. I have been thinking about over paying and what happens if I have a lumpsum. But to be honest, I'll worry about it when/if I have the lumpsum.

Wheety

This is from KBC's website. If would be quite easy to create your own Excel sheet for it.

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 date 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.

‘Wholesale rate’ means the rate per cent per annum which the Lender determines to be the market rate applying to an appropriate interest rate swap for the relevant time period.

The following are examples of the calculation of the break funding fee:

A) Where Wholesale rate increases over the term of the loan:

Wholesale rate at the date the existing fixed interest rate applying to the loan was set (W): 7%

Wholesale Rate at switching/redemption date (M): 8%

Break funding fee €0

Where Wholesale Rate decreases over term of loan:

Wholesale Rate at date the existing fixed interest rate applying to the loan was set (W): 8%

Wholesale Rate at switching/redemption date (M): 7%

Break funding rate 1%

Unexpired Fixed Rate Period (T) Six months

Break funding fee (per €1,000 loan amount) €5

Break funding fee = (8%-7%) x 6 / 12 x 1,000 = €5.00 per €1,000.00

Wheety

Also, as the inter-bank rate is almost 0%, more than likely there will be no breakage fees for you.

If the interest rates go up there will be no breakage fee. If they fall further you will have a breakage fee.

mugsymugsy

Wheety wrote: »

Also, as the inter-bank rate are almost 0%, more than likely there will be no breakage fees for you.

If the interest rates go up there will be no breakage fee. If they fall further you will have a breakage fee.

Wheety very good point!

Troy McClure

Thanks for that. It gives more insight. We havn't fixed yet and are examining the permutations of doing so for 10 years.

So your saying if interest rates rise in a few years there will be no breakage fee? Does this mean if you pay off a lump sum, they wont charge a fee, but the remaining balance will revert to a variable rate allowing that's higher?

Wheety

I'd say that's correct. If you're not clearing the mortgage in one go, your new rate will be higher.

I know a mortgage is the most debt most of us take on but I think you may be over thinking all the permutations. I'd just fix for a period at a monthly cost you find affordable, taking into account any future costs like kids or if you need a loan for home improvements. Then re-evaluate after the fixed period.

For me it was 5 years as we found that a good middle ground. We'll look at fixing again or switching and at that point we'll pay off extra if we have it or reduce the term.

But yeah, more than likely, anyone fixing now will not have a breakage fee.

mugsymugsy

If I read your question correctly and with Wheetys point then yes that would be the case. Bare in mind you can overpay up to 10% of the capital that you borrow (check KBC terms and conditions).

Potential option fix at 10 years - Overpay up to 10% of the capital. Have the rest ready when you exit the fixed rate and pay off without any penalty.

Either do the calcs and weigh up the upside / downside and make a decision. KBC have already increased some 10 year rates recently and if you read the news interest rates could rise.

Wheety

Just to clarify mugsymusgy's point, the KBC 10% overpayment allowance based on the balance when you fix.

Simple, back of a beer mat calculation for the over payment:

Balance: €150,000
Fix for 10 years at 3% (percentage doesn't actually matter for this)
Overpayment allowed is €15,000.

That means you can pay a lumpsum of €15k or an extra €125 a month for the 10 years.



Again though, with rates creeping up, this may all be academic.

km79

Can I ask a different question in this topic
Our current fixed rates runs until 31/07/19 (july 12 months )
We will be selling our house in the period running up to that
So my question is this ......
Can the mortgage be redeemed without penalty from the 1st of July onwards as Taht is the date the last fixed rate payment will be made
Or is it from the 1st of August ?

mugsymugsy

km79 wrote: »

Can I ask a different question in this topic
Our current fixed rates runs until 31/07/19 (july 12 months )
We will be selling our house in the period running up to that
So my question is this ......
Can the mortgage be redeemed without penalty from the 1st of July onwards as Taht is the date the last fixed rate payment will be made
Or is it from the 1st of August ?

Back to the fantasy football forum for you

Honestly check and ask you bank but my two cents I really don't think it would be much and anyway when you clear the mortgage even on variable there is is a charge you have to pay it's like an admin fee.

km79

mugsymugsy wrote: »

Back to the fantasy football forum for you

Honestly check and ask you bank but my two cents I really don't think it would be much and anyway when you clear the mortgage even on variable there is is a charge you have to pay it's like an admin fee.

LOL thanks
Just trying to plan ahead and the extra month to move during the summer would be ideal