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My bank wants to charge me to leave fixed rate mortgage

This e-mail came through to the ValueIreland.com inbox recently – pretty topical given some of the recent posts. I think it’s a common question for many people at the moment given the drastic drop in interest rates.

Hi Do not know whether you can help. We have a fixed rate mortgage with KBCHomeloans. It is a three year fixed rate due to last until july 2010. I made enquiries about changing to a variable rate with a lower rate of interest. I was told it would cost 9,000 to change over to a variable rate.Is this correct? We have an outstanding balance of approx 300,000 mortgage loan with them.

It is standard practice for banks to charge if you try to break from a fixed rate mortgage early. You’ve signed a contract with them to pay them a certain amount of money over a certain period of time and in exchange, they gave you a mortgages.

So, trying to change to a variable rate mortgage means you’re breaking the terms of the signed contract and therefore, the bank needs to recoup the money they’d lose by letting you change to a variable rate mortgage.

The first thing to check is the details of the original mortgage contract you’ve signed to see what the charge was detailed as in there.

If it’s €9,000 or some fixed percentage, then you’re pretty much tied in and have to pay the asking amount. Alternatively, if it’s not specifically defined what the charge should be, then you might have a better chance negotiating the cancellation fee and getting the €9000 cut to a lesser amount.

1 comments On My bank wants to charge me to leave fixed rate mortgage

  • €9000 to break a legally binding contract entered into in good faith by both parties. I’d say that’s cheap.

    People got fixed mortgages because they gambled that interest rates were going to rise and then they would be making money at the bank’s expense. When it turned out to be the other way around they get all in a huff and say that’s not fair. Well Life isn’t fair. Imagine your reaction if you had fixed, intrest rates shot up to 12 or 13% and the bank came around asking could you please let them out of the contract because they didn’t really think this was going to happen so it’s not fair on them. You would laugh at them.

    Anyway you shouldn’t be in too much of a hurry to get out of your fixed rate mortgage. In a year they might be more valuable than gold. Every sensible economist is expecting interest rates to shoot up next year. Why? Because with the central banks of the world printing money inflation usually follows 6-9 months later. At the slightest twitch of interest rate going up in Germany the ECB will slap another 2% on the rate within two monthly meetings. They have form in this regard. Last year they increased interest rates because inflation in Germany edged up a slight little bit. This was a disaster in Spain, Portugal and Ireland but the ECB only looks at France and Germany when making decisions.

    I’m on a tracker mortgage we took out 18 months ago. At the time I wanted to fix but we went to a mortgage broker who actually understood the early signs of the state the economy was in and advised us to go for a tracker as he felt interest rates would fall. He was right and we are grateful. We have been in touch with him recently and he has advised us that the moment inflation starts to go up in Germany he will call us and get us on a fixed rate.

    I suggest you accept you gambled and lost and next time speak to someone who understands economics before making major financial decisions.

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