Wednesday, 16 May 2018

Ceisteanna (71)

Pearse Doherty


71. Deputy Pearse Doherty asked the Minister for Finance the reason a bank (details supplied) is charging customers a break fee significantly higher than other banks if they decide to move from a fixed rate apparently in contravention of the Mortgage Credit Directive; and if he will make a statement on the matter. [21577/18]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

I have received the following response from AIB:

" AIB adheres fully to the Mortgage Credit Regulation (MCR) and explicitly in relation to section 26 – Early Repayment. The bank is satisfied any breakage costs charged do not exceed the financial loss incurred. There are a variety of different methodologies being applied within the market to calculate breakage fees, and it is important to state, no standard methodology was prescribed by MCR. AIB Bank breakage costs are calculated as per the below worked example:

(A) the amount of the prepayment or early repayment = € 100,000

(U) is the unexpired term of the fixed interest rate period (in months = 2 years (24 months) on basis a customer fixed for 5 years (60 months) and are now breaking out of fixed rate after 3 years (36 months)

(D%) is the difference between the fixed interest rate applying to the facility and the fixed interest rate which would then apply to the facility for the amount of "A" for the term of "U" = 1% on the basis a Customer fixed at a 5 year rate of 4.25% and the fixed rate for the unexpired period (i.e. 24 months) is 3.25%

So, applying the formula A x U x D: € 100,000 x 24/12 x 1% = € 2,000

Important: where the remaining term of the fixed rate is between fixed rate terms e.g. 18 months, the breakage cost calculates at the current 2 year fixed and at the current 1 year Fixed and quotes the customer whichever is the lowest breakage fee amount.

Details of rates used by AIB to calculate breakages are detailed here:

AIB does not impose any penalties or other administration fees for operational costs incurred in breaking of a fixed rate mortgage contract over and above the break funding formula and does not make any profit or gain from the application of breakage costs to customers."