Penalty interest for early repayment of mortgage

Questioner

Dear sir, I have an interest-only Rabo mortgage and would like to repay it early. The market interest rate for consumer mortgages is currently higher than my mortgage. The annoying problem now is that Rabobank, according to its own statement, granted a discount of 0.4% when concluding the loan. I am not aware of this and it is not in the loan agreement. They now also apply this discount to their recommended interest rate for comparison.

Lawyer

what is the question?

Questioner

The question is, is Rabo allowed to charge a penalty interest? I want to pay off my mortgage.

Lawyer

You must check the terms of your loan and the General or Special Terms and Conditions that apply to it. Normally, you may repay a certain amount (for example 10% of the original principal) per year without penalty, upon sale of the home or at the end of the fixed-interest period even the entire amount without penalty. However, it is possible that you made different agreements when taking out the loan: you should be able to find this in your documents. You should ask the bank how any penalty interest is calculated. In short, it comes down to the bank not wanting to suffer any loss by breaking the (fixed interest) contract: the penalty is then the difference between the interest on the remainder of the fixed interest period, which they would have received from you, and the interest they are now asking for a period that corresponds to the remaining fixed interest period.

Questioner

Thanks for your answer, The general terms and conditions provided with the loan state what you describe. In 2005 I negotiated a lower interest rate of 0.4% on the loan. This upon presentation of a quote from another bank. Rabo agreed to this. Now the advised rate Rabo is 0.2% higher for the remaining term than the interest I am paying now. Rabo now states that the interest discount 2005 is also applied to the current advised rate as criteria. The general terms and conditions state that interest discounts will be settled and this is also stated as such in the loan agreement, or otherwise agreed. Interest 'discount' was not agreed in 2005, in any way, and is not stated in the deed either (not a word about interest discount).

Questioner

In the meantime, the bank has given in. Simply paid advice pays off!