Paddy Carolan (QFA)

If you are on a fixed-rate mortgage, you may assume you cannot switch until your fixed term ends. But that is not always the case.

A breakage fee, sometimes called an early repayment charge or break funding fee, can apply when you leave a fixed-rate mortgage early. However, the fee is not always as high as borrowers expect. In some cases, it may be relatively small, or there may be no breakage fee at all. With mortgage rates changing, it may be worth reviewing your options even if you still have more than 12 months remaining on your current fixed rate.

What is a breakage fee?

A breakage fee is a charge your lender may apply if you end, repay or change a fixed-rate mortgage before the agreed fixed period has finished.

This could arise if you:

Switch to another lender.

Move to a different rate with your existing lender.

Repay your mortgage early.

Make a large overpayment beyond what your mortgage terms allow.

Change the term or structure of your loan.

The purpose of the fee is to compensate the lender for a potential loss connected with the early ending of the fixed-rate agreement. Under mortgage rules, any compensation must be fair and objective, and cannot exceed the lender’s direct financial loss.

How is a breakage fee calculated?

There is no single breakage-fee calculation that applies across every lender.

In broad terms, lenders consider:

Your outstanding mortgage balance.

How long remains on your fixed term.

The funding cost or market rate when you originally fixed.

The lender’s current funding cost for the remaining fixed period.

For example, some lenders calculate the charge using the mortgage balance, the remaining term and the difference between the original cost of funding and today’s cost of funding for the unexpired period.

This is why two borrowers with similar mortgages can receive very different breakage-fee figures. Different lenders have different funding models and calculation methods, and the charge can move as market conditions change. The CCPC notes that breakage fees can vary day to day because they are linked to market conditions rather than simply the terms of your mortgage.

Why it may be worth checking now

Breakage fees are often more significant when market rates have fallen since you fixed, as the lender may face a greater loss by receiving its funds back early.

When rates are rising, however, the calculation can work differently. Your lender’s current funding cost for the remaining fixed period may be closer to, or higher than, the cost when you fixed. That can result in a lower breakage fee – and, in some cases, no fee.

This does not mean switching will automatically be worthwhile. The only way to know is to request your exact breakage figure from your current lender and compare it against the potential savings available elsewhere.

You may be surprised by the result.

Could a new deal outweigh the cost?

Even where a breakage fee applies, it should be considered as part of the overall switching calculation, not in isolation.

A competitive new fixed rate could reduce your repayments and save you thousands of euro in interest over the coming years. Some lenders also offer cashback, which may help offset the breakage fee and other switching costs such as legal fees and valuation costs.

Before making a decision, it is important to compare:

Your current interest rate and remaining fixed term.

The exact breakage fee quoted by your existing lender.

Available rates from other lenders.

Potential cashback.

Legal and valuation costs.

The likely total cost of staying versus switching over the relevant period.

A lower monthly repayment is important, but it is not the only consideration. The most suitable option will also depend on your loan-to-value, desired fixed term, repayment flexibility, overpayment options and longer-term plans.

Timing matters

Breakage fees are usually only guaranteed for a short period, often around five working days. As market conditions can change, so can the figure quoted by your lender.

That makes it important to have the rest of your switching preparation underway before requesting the final fee. A broker can help you review potential lender options, gather the required documents and establish whether there is likely to be a meaningful saving before you ask your lender for a formal redemption or breakage figure.

No broker can calculate your exact breakage fee without confirmation from your existing lender. But we can help you assess whether it is worth finding out.

Should you explore a switch?

If you have more than a year left on your fixed rate, do not assume you are locked into your current mortgage deal.

A breakage fee may apply, but it may be lower than expected – and the savings from a new mortgage rate, cashback offer or more suitable product could still outweigh the cost.

At Irish Mortgage Corporation, we can review your current mortgage, compare available options and help you decide whether requesting an official breakage-fee quote is worthwhile. If you proceed, we can support you through the switching process from start to finish.