The penalty interest on rescheduling or interest averaging may not be higher than the bank’s missed income. Calculate yourself if you do not pay too much penalty interest.
Excessive penalty interest and calculation not clear
The penalty interest keeps the minds busy. This is understandable now that many households are opting for retransmission due to the low mortgage interest rate.
In the past, banks have calculated a penalty interest that is too high. Recently it turned out that banks are sometimes not transparent about how they calculate the fine. In this article we explain what the calculation of the penalty interest must meet.
Penalty interest regulated
Whether the penalty interest is fair is another discussion. However, the penalty for interest averaging and transferring must not be arbitrary. That is why the amount of the penalty interest has been regulated by the Mortgage Credit Directive for a number of years. These new European mortgage rules stipulate that interest on early repayment may not exceed the bank’s actual financial disadvantage . Banks must also be transparent about the calculation method.
Banks charge excessive interest rates
Investigations by the Netherlands Authority for the Financial Markets (AFM), however, showed that banks, despite the regulation, had imposed an excessive penalty interest. The AFM has therefore established a guideline that banks must follow when calculating the penalty interest. In addition, banks must redo all penalty calculations from July 14, 2016 and repay any penalty interest that may be too high. Read more: Penalty interest too high? This way you get money back.
Calculate penalty interest
In the guideline, the AFM proposes to use the present value method to calculate the penalty interest. This is roughly the bank’s interest rate loss times the remaining fixed-rate period. On J. Alfred Prufrock you can calculate the penalty interest online based on the present value method. Below you will find a calculation example with more explanation about the method.
Basic principles (per loan component):
- Original mortgage amount: € 250,000
- Outstanding mortgage amount: € 200,000
- End of fixed-rate period: March 20, 2021 (24 months)
- Fines-free repayment percentage: 10%
- Current mortgage interest rate customer: 5%
- Current mortgage interest with the lender for the remaining fixed-interest period: 3%
Calculation:
- Amount of penalty-free repayment is € 250,000 * 10% = € 25,000
- Mortgage sum after penalty-free repayment (€ 200,000 – € 25,000) € 175,000
- Interest rate difference is (5% – 3%) 2% per year
- For the remaining fixed-interest period, the interest difference (2% * 2) is 4%.
- The fine is 4% * € 175,000 = € 7,000.
In doing so, banks must take into account:
- The repayment form
- Processed interest discount (s)
- The risk class
- Accrued value with (bank) savings mortgage