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AIB drops fee for mortgage customers breaking out of fixed rate

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AIB is allowing some customers to break out of fixed mortgages and lock into lower ones at no cost, in a move that is likely to benefit thousands of people.

In the past, people had been quoted breakage fees of thousands of euro to get out of a fixed rate.

AIB, the State's largest lender, recently reduced its fixed rates. This means that those locked into an existing high fixed rate could benefit from moving to a new lower fixed rate.

Founder of Askaboutmoney.com Brendan Burgess said contributors to his website found that when they asked what it would cost them there was no fee.

One poster on the site said she has a five-year fixed rate of 2.85pc. The bank, which is led by Colin Hunt, has since cut this rate to 2.55pc.

The poster asked AIB what it would cost to break out of a five-year rate. She was told that there would be a zero break fee.

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AIB chief executive Colin Hunt. Photo: Gareth Chaney, Collins

AIB chief executive Colin Hunt. Photo: Gareth Chaney, Collins

AIB chief executive Colin Hunt. Photo: Gareth Chaney, Collins

"I requested a break fee from AIB last Monday when the cuts were announced. We had fixed on a five-year rate of 2.85pc last June. Got the letter today, break fee of €0.00," the woman wrote.

The difference in repayments on the two rates for a €300,000 mortgage works out at more than €560 a year.

Mr Burgess said: "Some people are saying they fixed two months ago and they are stuck on the higher rate as AIB has since reduced its three and five-year rates.

"People are not stuck. They should get a quotation for the break fee, because as far as we can see it is not going to cost them."

He encouraged people with other banks to inquire about break fees if their bank has cut its fixed rates since they locked in.

Last year AIB was forced into an embarrassing climbdown amid accusations it was overcharging mortgage holders who want to break out of a fixed rate to get a better deal.

The bank admitted last September that it was changing how it calculates so-called breakage fees for those who want to end a fixed rate early.

Mr Burgess had been calling for the bank to change how it calculates the fees, to bring it into line with EU rules and to align with how other banks are calculating breakage fees.

When asked if people were now being allowed to break out of existing fixed rates free of charge, AIB said it had changed how it calculates break fees which is resulting in lower costs for exiting an existing fixed rate.

"AIB has introduced a revised approach where the fixed rate mortgage breakage fee is calculated using two formulae - a retail-based formula and a market interest rate- based formula," it said.

"Either formula may result in a lower calculation, and AIB applies the lowest of the two calculations to the customer."

The bank said the revised approach is available to new and existing customers who exit from fixed rates.

All AIB customers will have received information on this new dual calculation in their annual loan statements and it clarifies where they can find further information should they require it, the bank said.

Mortgage interest rates have been steadily falling over the past few years, with keen value now available for those locking into fixed rates.

Last month AIB cut its three-year fixed rate by 0.3pc to 2.55pc and its five-year fixed also by 0.3pc to 2.55pc. Its green five-year rate went down by 0.05pc to 2.45pc.

Irish Independent