Getting out of a fix without/reducing ERP - is this possible?

Anon

I included this in an earlier thread but realise it perhaps is worthy of more general discussion. With many mortgage companies you can decrease your term if you wish - this has the result of increasing your monthly payments to pay off more capital each month.

I wonder what would happen if the term of your mortgage was cut to within the fixed rate period where a redemption penalty applies? In an extreme example of 1 month would the outstanding balance of the mortgage become due and paid off by direct debit :rolleyes:? If there is a redemption penalty of, say, 3% of the outstanding balance, if the period has been reduced significantly there will be little outstanding balance to charge the 3% against - and in my 1 month example, there would be no outstanding balance at all as that final payment would pay it off, without it being an early repayment as the term itself would have been cut ?

This is all hypothetical, but is it possible?

The potential flaw in this plan is it would rely on you having 100% of the remaining mortgage balance in your account to pay off the final direct debit. If you were looking to remortgage to do this, is there a (cheap) way to get the money out from the new mortgage lender into your bank account in order to then pay the original mortgage lender off with that months "regular" (albeit significantly increased) payment?

Something to think about - but with some of the large Early Redemption Penalties discussed on this board recently, and some people wanting out of fixed rates, it at least warrants consideration.

Many thanks

Anon

Anon

Anon wrote: »

The potential flaw in this plan is it would rely on you having 100% of the remaining mortgage balance in your account to pay off the final direct debit.

To resolve this, would it be possible to secure a new second mortgage against the property to release the cash, then immediately pay off the first mortgage using the technique above? I suppose the problem would be that you would then need your own solicitor for the second transaction and problem with Land Registry securing two charges on one property? (and not sure that mortgage company A would be happy with mortgage company B securing a charge on the property).

Many thanks

Anon

_Andy_

The second charge would be a secured loan thus much higher interest rates than a standard mortgage.

Anon

Thank you - so that is not a goer then in my case but would the original scenario work in theory reducing the term down to one month so that the mortgage payment that month happened to be the total remaining balance, thus getting round the redemption penalty, or would the minimum be the remaining fixed period?

Anon