early repayment charge - not applicable if you simply sell your house?

free4440273

hi folks, just a quick question re early repayment charge. i know what it is but would like to know this: surely, the early repayment charge that building societies impose does not apply if you actually decided to sell your house? am i correct here? for example, if i take out, say, a ten-year fixed mortgage, and sell my house within, say, five years, then surely the idea of an early repayment charge does not apply, because i am just selling my house. i make this distinction of selling one's house as opposed to actually paying the whole mortgage off early (because then understandably the early repayment charge would apply).i hope this makes sense. i would appreciate any advice.

silvercar

The early repayment charge applies when you redeem your mortgage. If you sell your house you have to redeem the mortgage because the house is providing security for the mortgage. No house, no mortgage.

Whether or not you buy another property is only relevant in that some lenders will let you off the repayment charges if you take out another mortgage on your new property.

leet_first

Each mortgage company's conditions are slightly different. But generally speaking, YES the repayment charge will apply.

Any repayment of the mortgage, either by remortgaging or selling or just paying the mortgage off within the fixed term will result in the early repayment charge.
Some mortgage companies will allow you to avoid this charge if you take out a mortgage on the property you are buying, as long as it is of equal or greater loan amount.

Hope this makes sense.

free4440273

leet_first wrote:

Each mortgage company's conditions are slightly different. But generally speaking, YES the repayment charge will apply.

Any repayment of the mortgage, either by remortgaging or selling or just paying the mortgage off within the fixed term will result in the early repayment charge.
Some mortgage companies will allow you to avoid this charge if you take out a mortgage on the property you are buying, as long as it is of equal or greater loan amount.

Hope this makes sense.

thanks both of you. but one thing i don't understand is: when does the early repayment charge actually then end?? for example, if i take out a five-year fixed mortgage and at the end of the five years am still living in the same house, then the rate will revert to the standard variable rate (i think i am right in saying this). so at this point, has the early repayment charge ended. hope this makes sense. or does the early repayment charge simply carry on indefinetly! at what point does it end - in this example after the five years? thanks

TangentMan

It should be clearly stated on the offer documentation that you received.

As a complete generalisation that is definitely not true in 100% of cases, the Early Repayment Charge is applicable during the preferential period of the mortgage (i.e. fixed rate period, discount period and so on) and it not applicable after that.

However, some lenders have "extended tie ins" where the ERC extends beyong the preferential period.

Best to check with your lender before you make any decisions.

TEDDYRUKSPIN

All clearly stated on your policy or just phone up your mortgage provider and just say you want to pay off your mortgage early and they will send a sheet with penalties etc for free.

If your mortgage is fixed for 5 years and you sell on year 3, you will have to pay your penalty. But the penalty reduces year by year eg. it maybe 3k for the first year but 2nd year might be 2.5k?

So the answer is? You have to pay the penalty unless your outside your term of your contract.

sidtrix

yeah, you will need to pay the penalty... note some mortgages dont have a sliding scale decrease in the penalty for the first 2-3 years so check your mortgage agreement.

free4440273

does all of this mean that after the term of the contract (say, a five-year fixed rate) the early repayment charge is void. in other words, when the rate reverts to the standard variable rate, after the fixed period, the ERC becomes void?

sidtrix

Yes after the fixed period comes to an end... be it 2/3/5/10/15 years, the erc is void.
Am seeling our flat and the fixed period ends in August so have set the completion date for after that date... if the date was earlier than August, I would have to cough up the huge penalty cost.

TangentMan

free4440273 wrote:

does all of this mean that after the term of the contract (say, a five-year fixed rate) the early repayment charge is void. in other words, when the rate reverts to the standard variable rate, after the fixed period, the ERC becomes void?

Not necessarily. Some mortgages do have extended tie ins (or ERC periods) that are longer that the preferential period.

It would depend on how old your mortgage is and who your lender is and what their wacky charging policy was at the time you took it out.

All we can say is that yes, an ERC applies and there will be a point at which it doesn't apply which is likely to be 5 years after your mortgage started. But to find that out for certain contact your lender.