C&G Early Redemption Charges & Switching Products

SimonGold

I've had a mortgage with C&G for seven years. We have over 60% equity in our house and we are on a five-year fixed rate until September 2013 at 6.29%.

The ERC is about £7,500 but in order to switch to a product with a lower rate of interest with the same lender, they need these charges paid up front rather than tacking them onto the back of the mortgage.

If I had that sort of cash lying around, I probably wouldn't be looking to reduce my mortgage costs.

Have they got me over a barrel? Am I 100% committed until my five-year deal runs out? I am self-employed and will be able to show two years accounts this April.

Help!

Thrugelmir

SimonGold wrote: »

I've had a mortgage with C&G for seven years. We have over 60% equity in our house and we are on a five-year fixed rate until September 2013 at 6.29%.

The ERC is about £7,500 but in order to switch to a product with a lower rate of interest with the same lender, they need these charges paid up front rather than tacking them onto the back of the mortgage.

If I had that sort of cash lying around, I probably wouldn't be looking to reduce my mortgage costs.

Have they got me over a barrel? Am I 100% committed until my five-year deal runs out? I am self-employed and will be able to show two years accounts this April.

Help!

Would you save any money?

As adding the fees onto your mortgage increases your repayments in the longer term.

Fairdo_2

As Dunstonh has replied in a thread nearby about paying off Early Redemption Charges:

dunstonh wrote: »

Many fixed rates are financed by investors money that is fixed as well. So, often the bank isnt making any more out of you and if you redeem it early the bank still has the liability to pay the investors or suffer a penalty themselves. (simplified the process a bit for easy wording).

Unfortunately, the funds are bought and paid for by costing out their own profit margin. The risk you take by having the stability for that term is that you will not get the flexibility to change it if circumstances change.

I would try to look at it that it was affordable then, so hopefully it could be more affordable now if you are not suffering from the credit crunch.

You could speak to a local, non fee charging, whole of market broker and get them to do the sums for you and see if it is worth changing, but a Lender will have costed it out on the assumption you would keep the deal. If you get out early, they need to cover their costs.

darbo23

We have a mortgage with Cheltenham & Gloucester and are 3yrs into a 5yr fixed rate. As the rates have dropped since we took out the mortgage we were looking to change for a lower rate which would reduce monthly payments by a decent amount and free up cash. We knew that this would incur ERC's, but even with this we would still be better off. Unfortunately, when we spoke to C & G today we were told we would have to pay the ERC (£3000) up front by cheque or cash, even if we stayed with them but swopped product.
We dont recall being told this at the time we took out the mortgage and cant find it in the paperwork. C & G say it is standard procedure, but we thought you could add the ERC to a new mortgage. We dont have £3000 just lying around so does that mean we are stuck paying more than we need to every month until this fixed rate expires or would other mortgage providers be able to help by splitting the payment to cover the ERC separately

JasX

Interesting, I'm with C&G on a 5 year fix but didn't realise it was even possible to switch products?

what would they let you switch to? surely not the SVR? if its something else like Bank of England Rate +x% i'd be a bit wary as you could be in for a bit of a shock 2 years or so down the line.

I'm nearing the 4 year mark of my 5 year fix so hopefully not facing as steep ERC.... current fix is 5.09%, about £110k costing £720pm (21yrs remaining)

dunstonh

We dont recall being told this at the time we took out the mortgage and cant find it in the paperwork.

It has no reason to be there. They have no requirement to offer you any deals in future. The fact they may do so is not a contractual event and therefore is not in the contract.

You are asking them to redeem the mortgage and the redemption terms are covered in the contract and they are applying them correctly.

C & G say it is standard procedure, but we thought you could add the ERC to a new mortgage.

To a new mortgage you can but you are not buying a new mortgage. Some lenders wont even allow you to switch deals mid term even if you pay the fee.

JasX

...aaaaaahhhhhhhhhhh Just been onto their site and there is very much a sting in the tail here, any change to your deal now and you'll lapse onto their uncapped 'Homeowner Variable Rate' at the end of your deal (4% now) rather than their capped SVR (2.5% now, capped at base+2%).

could work out very expensive if you've overlooked something like that in your sums

Miss_Mercian

We're in exactly the same position - 3 years into a 5 year fixed rate being charged £3352.86 as an early exit fee. They did say we could add this onto the mortgage and pay back on the standard variable rate (currently 0.5%) which makes it a little more appealing, though we'll need to do some tricky sums to work out if it is worth it.

There of course is also the problem that we'll be sacrificing being able to switch to a standard variable rate for the full amount once the full 5 years is up. 2 more years to wait. Until then we'll have to continue at a rate of 6.13% interest.

I do think it is naughty for C&G to have such a hefty exit fee when you are trying to remortgage with them - we'll not leaving them!

Any advice?

opinions4u

Miss_Mercian wrote: »

We're in exactly the same position - 3 years into a 5 year fixed rate being charged £3352.86 as an early exit fee. They did say we could add this onto the mortgage and pay back on the standard variable rate (currently 0.5%)

Are you sure? It's good news if they will. (SVR is 2.5%, surely?).

which makes it a little more appealing, though we'll need to do some tricky sums to work out if it is worth it.

Stating how much you owe could get you an informed opinion from other posters.

There of course is also the problem that we'll be sacrificing being able to switch to a standard variable rate for the full amount once the full 5 years is up. 2 more years to wait. Until then we'll have to continue at a rate of 6.13% interest.
Any advice?

I'm slightly confused. What are you proposing and what do you want advice on? It's early in the day, but I can't work out what you're changing and when you're planning to change it from what's been typed. Apologies if it's me!

I do think it is naughty for C&G to have such a hefty exit fee when you are trying to remortgage with them - we'll not leaving them!

If you are breaking your contract, they hold the aces. If you are breaking your contract and leaving them exposed to an expensive contractual position with whoever lent them the funds that provided your mortgage, then why shouldn't they ask you to contribute towards their costs?

Thrugelmir

Miss_Mercian wrote: »

I do think it is naughty for C&G to have such a hefty exit fee when you are trying to remortgage with them - we'll not leaving them!

You happily signed the mortgage offer originally. If you want the security of a fixed term product you have to accept the conditions. As has been said earlier in the thread ERC's are imposed for valid commercial reasons.