redemption penaltys and early repayment charges

barberboy

Hi,

I have been a member for ages but never looked at this area before.

I was hoping one of you experts could help me out wth your knowledge.

I am basically in a position to pay my mortage off over 20 years before the final payment date, unfortunately for me, i am in a fixed deal for the next 3 years and 3 months(thereabouts).

If i want to pay off my mortgage i will incur a charge of 1.7k and an admin charge of £90.

I have worked out that pound for pound on an interest rate of 5.63% i am paying nearly £10 per day interest and if i see out the remainder of my 3 years 3 months i would be paying over 10k in interest, so i suppose i am stuck between the devil and the deep blue sea as they say but i suppose the lesser of 2 evils is to take the hit on 1.8k all in to save 8.5k ultimately in interset over the next 3 years.

What i would like your view on is this :

Is there anyway whatsoever that i can get out of paying this harsh redemption penalty/early repayment charge?

I dont think there is but id love to hear ideas from anyone who thinks they might be able to help me.

Cheers

Welshlassie

Unfortunately there is unlikely to be a way of getting out of paying for the ERC's. You agreed to the terms and conditions including the ERCs when you signed up to the mortgage. I know how frustrtaing this is as I'm currently remortgaging and buying out of fixed rate deal, having to pay £7.5k but I will still be better of by around £15k over the next 3 years.

If you can pay off the mortgage and still have sufficient emergency savings I'd bite the bullet and pay it off.

Good luck.

Jonbvn

barberboy wrote: »

Is there anyway whatsoever that i can get out of paying this harsh redemption penalty/early repayment charge?

Please understand that in order to fund your mortgage, your lender has borrowed money from investors, and agreed to pay them a fixed amount of interest for a fixed period, with an allowance for their margin. Therefore if you were to break your fix, the bank would lose money, since they are not allowed to break their own fix with investors.

Given the above, you will appreciate that there is no way round the ERC.

BTW, you should have posted on the mortgages board not the MFW board.;)

_Andy_

No way around the ERCs. Nothing 'harsh' about them - you were well aware of them when you took the mortgage out.

barberboy

_Andy_ wrote: »

No way around the ERCs. Nothing 'harsh' about them - you were well aware of them when you took the mortgage out.

lol, u always get 1 'brain' no matter what message board you go onto on this site.

Andrew, thank you for your opinon, however, i did not ask you for you opinion on my view of ERC's and to state the obvious, in my opinion it is harsh as they make money hand over fist from me - every man and his dog knows this-simple, this is my opinion, i did not ask for a cheap shot from a petty school boy mentality with all due respect...
All i wanted was an opinon of someone who maybe had more knowledge than myself incase i had 'missed a trick' as it were.

It is people like you that stop new people coming onto these boards as you are just plain patronising and rude, if you want to take cheap shots at people then go back to the school playground where you belong.

You must get some sort of satisfaction out of your ' snidey digs ' really puzzles me.
good luck to you and learning some simple manners.

You do the reputation of this helpful, good website no favours at all my friend.

MarkyMarkD

Simply because you don't know what you are talking about, doesn't make Andy wrong.

Your lender isn't "making money hand over fist". The fact that they are charging you 5.63% doesn't mean that they are making much interest margin. It simply means, as Andy said, that they've agreed to pay someone else something like 5% fixed.

Given the current state of the financial markets they may well not be making any money at all on your mortgage.

But they'd make even less if they let you walk away and they STILL had to pay someone else 5% for 3 more years, whilst charging someone else less than that on an equivalent new mortgage.

If "every man and his dog" knows that your mortgage lender is making money hand over fist from you - and how on earth do they, when you haven't said when you took out the mortgage, what the fee was up-front, what your LTV was, etc. etc. - then "every man and his dog" should read some intelligent posts like those Andy posts and try to understand them.

barberboy

Marky,

Ok, im going to make this very simple for you ok.

here we go...

Banks make money, hand over fist from us, not just from mortgages, but from every aspect of their business and they have been doing so for years. If you do not know this sir then i will tell you sir, it is you who doesnt have a clue what you are talking about.

I simply thought that as i am no expert on mortgages and i am fortunate enough to be able to pay it off then as i said maybe i had 'missed a trick' however unlikely i thought id ask more clued up people but instead i get sarcastic remarks thrown in.

As stupid as it may seem, i thought maybe as banks have been screwing us with bank charges/over inflated admin charges on top of ERC's there just maybe a chance i could be getting screwed on my ERC. Sorry for coming across like i dont know what im talking about but i thought it was a valid question and now i am incurring attacks from you also.

Real friendly charcters in here then... (ahem)

Hillarious

MarkyMarkD

Oh we're friendly enough.

But your initial question was "can I get out of paying this charge" the answer to which is simple: "no".

You cannot post on a forum and say "I didn't ask for your opinion on ..." (insert part of your comments which you have deemed sacrosanct).

The whole point of the forum is that whatever you say is up for grabs.

ERCs are not, generally, harsh. They are a reasonable charge to reflect the cost to the lender of early settlement.

Particularly at the moment, almost anyone redeeming a fixed rate mortgage with any sort of time remaining on the fix, will actually be paying WAY less than the cost to the lender if they redeem early. That's life for the lender. But there are equally other times when the ERC is more than the cost to the lender. That's life for the borrower.

Either way, it's a deal you freely entered into. If you didn't want an ERC, there are plenty of mortgages to choose from which don't have them.

barberboy

MarkyMarkD wrote: »

Oh we're friendly enough.

But your initial question was "can I get out of paying this charge" the answer to which is simple: "no".

You cannot post on a forum and say "I didn't ask for your opinion on ..." (insert part of your comments which you have deemed sacrosanct).

The whole point of the forum is that whatever you say is up for grabs.

ERCs are not, generally, harsh. They are a reasonable charge to reflect the cost to the lender of early settlement.

Particularly at the moment, almost anyone redeeming a fixed rate mortgage with any sort of time remaining on the fix, will actually be paying WAY less than the cost to the lender if they redeem early. That's life for the lender. But there are equally other times when the ERC is more than the cost to the lender. That's life for the borrower.

Either way, it's a deal you freely entered into. If you didn't want an ERC, there are plenty of mortgages to choose from which don't have them.

Thanks Mark,

I hope you can understand why i spat the dummy, i dont like ignorance and bad manners, i dont mean from you. I thought it warranted the question, even though i 99% already new, i am now confident when i redeem my mortgage i will be making the right decision.
I have made a fortune from this website from sharp little methods (but very effectve) like no risk Matched Betting etc... all learned from asking people questions on this wonderful site, for this i will always be eternally grateful but there is still no excuse for bad manners.

thanks again mark.

MagsyB

Could you not reduce the term of your mortgage to finish when the fixed ends while keeping the money in as high an interest account as you can.
Release the funds when you need to - maybe monthly transfer to a current account.
Its harder work and you will need to the the maths but it might be cheaper then the redemption figure.
Is that any use??
All the best
MagsyB

MarkyMarkD

You are right that it's worth doing the maths, Magsy, but I doubt it will work for many people in this situation - which is precisely because the ERC is actually very good value at the moment!

If the OP's ERC is 3% of balance - which is the most common charge applied by lenders - and he has 3 years and 3 months to go (so let's call that 3 years for simplicity) - the ERC is costing about 1% per year.

So, he would need to invest his money at the fixed mortgage rate of 5.63% less 1% = 4.63%: NET OF TAX.

That is pretty much unachievable without risk.

So it's better value to pay off the mortgage, if you have the money.

From the lender's point of view, the exact opposite applies. They will have to pay the equivalent of around 5% to an external third party, in respect of the OP's mortgage, for the remaining 3 years and 3 months, and they cannot lend the money to someone else at that rate at present. So they will make a loss for the 3 years and 3 months, only partially offset by the ERC.

Even if they could lend the money out at around 4.63% (the 5.63% less the 1% effective annual ERC) they would be no better off than they are with the OP owing them the money, and worse off than they would be lending the money at 4.63% and getting a new swap for around 2.5%!