English Forum Switzerland

English Forum Switzerland (https://www.englishforum.ch/forum.php)
-   Finance/banking/taxation (https://www.englishforum.ch/finance-banking-taxation/)
-   -   Early repayment of Libor Mortgage... (https://www.englishforum.ch/finance-banking-taxation/300404-early-repayment-libor-mortgage.html)

exHelvetica 28.09.2020 16:49

Early repayment of Libor Mortgage...
 
I had a 3M Libor mortgage, with interest was payable quarterly in arrears.

The interest rate (3M Libor + Margin) was reset on a quarterly basis in advance (i.e. set in the last days of September for the coming Oct-Dec quarter etc.)

So far so good.

I had always assumed that because I was not on a fixed-rate product, the term of my mortgage would not be fixed either…

Work took me back to the UK and I put my property on the market.

The sale took many months to negotiate and it wasn’t possible to anticipate exactly when the sale would go through. There were even doubts right up until to the eleventh hour whether it would, but it eventually it went through in August and I was presented with a rather salty bill from my bank who believed that they were entitled to compensation to the tune of 1,5% pa from mid-August until to 31/12…

I’m scratching my head here as unbeknown to me, it would appear that I was effectively borrowing in rolling 3-month calendar quarter terms and I was obliged to give at least 3 months’ notice for the end of the next calendar quarter if I wanted to get out of it.

i.e. if I knew that my buyer wanted to complete the purchase on 01/10, I could have given notice on 30/06 but if the buyer wanted to complete on 30/09, I would have had to have given notice on 31/03 (i.e. effectively a full 6 months in advance of the sale).

The bank was thus lining itself up to extract at least 1,5% pa for 3-6 months in compensation in all but the least likely of circumstances (i.e. where the completion of a sale transaction could be negotiated on a firm basis at least 3 months ahead AND timed to coincide with the calendar quarter end).

Just wondering if this is just how it is before I consider contacting the Ombudsman for its view?

roegner 28.09.2020 16:51

Re: Early repayment of Libor Mortgage...
 
What is written in your mortgage contract with the bank? Check that before you go to an Ombudsman

exHelvetica 28.09.2020 17:09

Re: Early repayment of Libor Mortgage...
 
I would say that the (French) language in my contract is less than clear, hence my question as to whether or not it sounded like it could be a Swiss banking convention, in the absence of a precisely defined/expressly stated rule.

I do see mention of a requirement to give 3 months' notice, but that would take me to mid-Nov (not end Dec).

I had (perhaps naively) assumed that this 3 months was more relevant in cases of refinancing and not when borrowing simply ends with repayment.

The fact that the interest rates were being reset prospectively on a calendar quarterly basis does not to me mean that we were creating a new term based on calendar quarters...

In summary, I understand that fixed rate mortgages are also fixed term but I had assumed that my 3M Libor montage was otherwise 'variable' with the interest rate being updated on a calendar quarter basis but with an underlying term that was not defined in any particular way (i.e. perpetual).

Sean Connery 28.09.2020 17:12

Re: Early repayment of Libor Mortgage...
 
you undoubtedly signed a rolling contract for (probably) one year for your inter-bank-rate-based mortgage with payments every 3 months. The contract duration therefore would be correct, until the end of the year.

It is not a 3-month contract and I also think it's no longer LIBOR but perhaps SARON - SSDD, of course :)

exHelvetica 28.09.2020 17:42

Re: Early repayment of Libor Mortgage...
 
Libor lives on for the immediate future, but the writing is on the wall...

The language in question is "En tout temps, de part et d’autre moyennant préavis écrit de 3 mois pour la fin d’une échéance de taux."

There is precious little else in the way of other references to an explicit or implicit term in my contract (which dates back to 2009), so I believe that I'll have to refer it to the Ombudsman...

3Wishes 28.09.2020 18:17

Re: Early repayment of Libor Mortgage...
 
Quote:

Originally Posted by exHelvetica (Post 3221603)
Libor lives on for the immediate future, but the writing is on the wall...

The language in question is "En tout temps, de part et d’autre moyennant préavis écrit de 3 mois pour la fin d’une échéance de taux."

There is precious little else in the way of other references to an explicit or implicit term in my contract (which dates back to 2009), so I believe that I'll have to refer it to the Ombudsman...

When did you give your notice? The French reads to me that you can terminate with minimum 3 months' notice, for the end of a rate term. You said above that the rate term is quarterly.

If you gave notice in August, you gave notice for the coming quarter, which ends 31 December. You would owe the interest they would expect for that quarter.

exHelvetica 28.09.2020 18:52

Re: Early repayment of Libor Mortgage...
 
I was in effect unable to give notice as there was so much uncertainty over the completion of the sale.

In effect, I only knew the sale was proceeding when the notaire called me to tell me that he saw the cleared funds...

So yes, I effectively repaid the mortgage in full in mid-Aug and the Bank have determined that they are due 'compensation' at 1,5% until 31/12 which is more than I would have paid in interest (based on Libor* + their 1,2% margin) if I had been able to defer the sale until 31/12 which just seems wrong to me...

*Libor was of course negative, but that's another can of worms, TBC.

roegner 28.09.2020 19:17

Re: Early repayment of Libor Mortgage...
 
Quote:

Originally Posted by 3Wishes (Post 3221620)

If you gave notice in August, you gave notice for the coming quarter, which ends 31 December. You would owe the interest they would expect for that quarter.

Quote:

Originally Posted by exHelvetica (Post 3221626)
I was in effect unable to give notice as there was so much uncertainty over the completion of the sale.


So yes, I effectively repaid the mortgage in full in mid-Aug and the Bank have determined that they are due 'compensation' at 1,5% until 31/12 which is more than I would have paid in interest (based on Libor* + their 1,2% margin) if I had been able to defer the sale until 31/12 which just seems wrong to me...

Is there a clause for "early repayment" in your contract? That may be the increase

exHelvetica 28.09.2020 19:50

Re: Early repayment of Libor Mortgage...
 
Exactly.

The 1,5% pa compensation comes from the early repayment clause.

My wider points remain:

1). was it reasonable to charge from mid-Aug to end-Dec or should they have capped it at 90 days

2). was it reasonable to charge 1,5% when the interest rate was effectively 1,2%.


When my agreement was struck (2008), the effective interest rate was >3% so the compensation in the event of early repayment was priced at a discount to the effective rate. I have also read elsewhere that banks are not allowed to charge leaving customers negative interest...

Banks do have a propensity to whack exiting customers as it's their last chance to milk them, but I must say that I had a comparatively good experience with the bank with three-letter-name when the time came to withdraw ma savings/the equity from my house sale as they waived their default withdrawal charge as I had been a (relatively!) good paying customer over the preceding 20 years. ;-)

roegner 28.09.2020 19:53

Re: Early repayment of Libor Mortgage...
 
Quote:

Originally Posted by exHelvetica (Post 3221653)
Exactly.

The 1,5% pa compensation comes from the early repayment clause.

My wider points remain:

1). was it reasonable to charge from mid-Aug to end-Dec or should they have capped it at 90 days

2). was it reasonable to charge 1,5% when the interest rate was effectively 1,2%.


When my agreement was struck (2008), the effective interest rate was >3% so the compensation in the event of early repayment was priced at a discount to the effective rate. I have also read elsewhere that banks are not allowed to charge leaving customers negative interest...

Banks do have a propensity to whack exiting customers as it's their last chance to milk them, but I must say that I had a comparatively good experience with the bank with three-letter-name when the time came to withdraw ma savings/the equity from my house sale as they waived their default withdrawal charge as I had been a (relatively!) good paying customer over the preceding 20 years. ;-)

1) yes (and no to the cap as apparently it is in the contract
2) if it is per the contract/early repayment yes.

Why not talk to them and ask them to lower the interest/charge? If you were that good a customer they might be willing to look into it

Landers 28.09.2020 23:34

Re: Early repayment of Libor Mortgage...
 
Quote:

Originally Posted by exHelvetica (Post 3221653)
When my agreement was struck (2008), the effective interest rate was >3%




Just think of all the money you've saved!

A fee for cutting the loan short is normal but I have no clue about the specifics you're referring to! Seems that fee would be the same whether the rate is 3% or 1.3% and you were aware of it from the start.

Sigh 29.09.2020 11:25

Re: Early repayment of Libor Mortgage...
 
Quote:

Originally Posted by exHelvetica (Post 3221653)
Exactly.

The 1,5% pa compensation comes from the early repayment clause.

My wider points remain:

1). was it reasonable to charge from mid-Aug to end-Dec or should they have capped it at 90 days

2). was it reasonable to charge 1,5% when the interest rate was effectively 1,2%.


When my agreement was struck (2008), the effective interest rate was >3% so the compensation in the event of early repayment was priced at a discount to the effective rate. I have also read elsewhere that banks are not allowed to charge leaving customers negative interest...

Banks do have a propensity to whack exiting customers as it's their last chance to milk them, but I must say that I had a comparatively good experience with the bank with three-letter-name when the time came to withdraw ma savings/the equity from my house sale as they waived their default withdrawal charge as I had been a (relatively!) good paying customer over the preceding 20 years. ;-)



Here you can find information regarding negative interest payments
http://www.bankingombudsman.ch/meldu...schaedigungen/

exHelvetica 29.09.2020 12:09

Re: Early repayment of Libor Mortgage...
 
@rogener - I borrowed from a bank with a four-letter name but held my other assets with the bank with the three-letter name :)

@Landers - It's not lost on me that I benefitted from a decade of low interest rates and I wasn't locked-in to what might have looked like an attractive fixed interest rate in 2008. I'm still miffed that I appear to have been hooked into an agreement that was designed to extract an exit fee in all but the most improbable circumstances i.e. when both parties commit to quarter end completion date at least 3 months ahead but perhaps that is just an example of common practice.

@Sigh - I had seen that link, thank you. The key point is that it is no bank should make the borrow pay an extra penalty based on negative interest rates upon early termination.

I found a separate source (below) which refers to the possibility that negative interest rates 'could' have the effect of reducing the effective interest rate based on 3M Libor plus a fixed margin to below the fixed margin (i.e. -0,8% + 1,2% margin should mean an effective rate of 0,4% ) - but that it is unlikely that the effective interest rate incl. margin could ever turn negative i.e. where the lender could be obliged to pay 'interest' to the borrower, unless that was a scenario that was expressly provided for in the agreement (i.e. -0,8% + 0,5% margin would result in an effective interest rate of no lower than 0,0%).

https://www.internationallawoffice.c...oan-agreements


All times are GMT +2. The time now is 18:08.

Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2021, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0