How can I avoid early repayment fee ?

NewCanuck

Hi there, I'm new so please be gentle with me

Basically my question is this. I have a 3 year fixed rate mortgage with The Principality. This fixed rate finishes on 31st August of this year. However I have to sell my house as I am moving abroad with work, so it's currently on the market, and if I sell the house before August I am hit with an early repayment fee written into the mortgage offer. The T&C's state the following:

"If you repay a part of the loan before 31st August 2006, you shall pay us an additional amount of interest equal to 2.00% of the amount of capital repaid"

Firstly I'm not entirely sure what this means. Do they mean 2% of the entire amount borrowed intially, or 2% of what I have just paid them back ?

Secondly, and more importantly, are there any loopholes or ways to get around paying this 2% penalty (especially as it will only be a couple of months) ? Couldn't I just agree to pay them a fee equal to the amount of interest I would have paid had I let the mortgage run it's full 3 year term ?

For example, if I repay my mortgage on 31st May, then I would have repaid it 3 months early, so I would owe them 3 months interest ( currently about £438 a month).

So 438 x 3 = £1314 . . .

rather than 128700 x 2% = £2574

Any words of advice greatly received, thanks for reading

regularsaver1

Basically the penalty applies to the amount outstanding before 31st August 2006. The only thing I can suggest as a maybe is that when you sell you receieve this money - rather than direct to the mortgage company and then you repay it. (but you have to pay everything back to the lender when selling , so my original thought of leaving a small balance is out of the question)

I'd contact the lender to find out what the current redemption penalty fee is , and any other fees too eg. do they have your deeds? - deeds release fee, and also Repayment Administration fee sometimes £150plus

Selling could take some time anyway??

Dan29

Yes it's £2,574, and no they won't let you get away without paying it, sadly.

I think you'll have to either resign yourself to paying it or delaying the sale so that it completes in September - probably not worth the hassle for such a (relatively) small amount?

roswell

I would assume that thsi fee will just come out the equity you have buildt up anyway surely ?

david29dpo

if you need the mortgage on your new house you may be able to take your present mortgage with you.

NewCanuck

As I thought, looks like I'm stuck with it. At the end of the day I've made quite a bit of equity so it's not a show stopper, would've just liked to have found a way to circumvent paying it as selling my house now looks likely to cost me over of 5 grand in estate agents fees and early repayment penalty.....doh !

HelpWhereIcan

As david29dpo said, you may be able to take your mortgage with you. This is called 'porting' and as far as I am aware the Principality's products are portable (although some specific deals may not be).

What this means is that, providing you still fit their criteria and the Principality will lend you the amount you need for the new house, the Principality will allow you to move your mortgage to the new house without charging the penalty. Any extra borrowing over your current £128700 (ish) would normally be best done at their Standard Variable Rate because this means that you only have to sit it out with the Principality on your current deal until the penalty is finished and then re-mortgage the new house to a new lender as normal.

This may mean that you will pay a valuation fee and arrangement fee to the Principality for the new house and any fees to remortgage in Sept, but I dare say they will be a lot lower than paying the £2574 early repayment charge.

Speak with a broker to see if this can be done and if it is appropriate in your circumstances. Having said that, the Principality would be able to tell you - just make sure you don't get tied in for any longer than you currently are unless they are willing to offer the full amount of your borrowing on one of their current deals that is competitve and suits you.

herbiesjp

Isn't the OP selling up because he is moving abroad with work though? Porting not really an option.

HelpWhereIcan

Yeah, helps if you read the OP properly!!!

In that case, ignore my post unless you are staying in the country and actaully want to buy another house!!

That'll teach me to think that I can multi task :rotfl:

regularsaver1

Grrrrr today I have received a complaint saying I that cust was givenm bad advice as she was going to move within a year and has early repayment charges.

This really annoys me as, the interview was non-advised, she received a KFI with the early repayment charges in it and the option of portability, I was observed at the time by a supervisor, and the customer signed the product acceptance document.

She spoke to a colleague last week and was fine, but saw an IFA yesterday and has now complained. - No leg to stand on though grrr!!!!