Martin Heydon (Kildare South, Fine Gael)
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231. To ask the Minister for Finance the reason persons who pay off their mortgages early are being penalised by certain banks; his plans to address this issue; and if he will make a statement on the matter. [18544/13]

Michael Noonan (Limerick City, Fine Gael)
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Firstly, I must confirm to the Deputy that it is not appropriate for me to comment on the loan arrangements of a particular borrower. However, I have been informed by the Central Bank that Section 121 of the Consumer Credit Act 1995 permits a mortgage lender to apply an early redemption fee in certain circumstances, which includes breaking a fixed rate contract.

The Central Bank has indicated to me that when credit institutions provide fixed rate mortgages to customers, they utilise wholesale funding at a fixed rate to match the fixed credit they provide to customers. If interest rates fall, credit providers may be locked into accessing wholesale market credit at a higher rate than they can charge consumers in the retail market. As a result, a cost arises which is covered through the charging of a break cost. In the current environment, interest rates have fallen and as a result there is a differential between the interest rate that the credit provider has locked into for the funds supplied to customers and what they can charge to customers, for the remaining period of the fixed rate loan.