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Old 28.09.2020, 16:49
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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?
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Old 28.09.2020, 16:51
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Re: Early repayment of Libor Mortgage...

What is written in your mortgage contract with the bank? Check that before you go to an Ombudsman
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Old 28.09.2020, 17:09
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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).
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Old 28.09.2020, 17:12
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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
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Old 28.09.2020, 17:42
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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...
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Old 28.09.2020, 18:17
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Re: Early repayment of Libor Mortgage...

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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.
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Old 28.09.2020, 18:52
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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.
 




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