Is 5% an unreasonable early repayment fee?

jkpaul

Hi,
newbie question I'm afraid, but finally getting sick of too much debt and not enough savings this year, I'm trying to get to grip with our finances.

My wife and I have 4 kids, she's self-employed, I'm employed and run my own (very small) business as well and the money just doesn't seem to stretch to everything.

So I've been doing something with all those useful MSE mails I've been receiving for years and not doing enough with!

I'm now looking at trying to remortgage before the interest rates start to increase this year.

We were previously with Northern Rock and they persuaded us in Apr 2009 to switch to a Lloyds TSB / Cheltenham & Gloucester mortgage.

We were offered a 5-year fixed rate (4.79%) on our approx. £ 190 000 remortgage over 25 years (house value £ 325 000).

At the time we spoke to our IFA and he said he couldn't get anything nearly as good as that and he advised we take it.

I'm keen to get something for 5 or 7 years fixed, instead of the 3 we have left on our deal - coming out into the market in May 2014 could just be at the height of the interest rates I fear.

So 2 years into this agreement I've just spoken to C&G to see whether they have any other better longer-term deals we can catch before the rates go up. Of course I'm also keen to trawl the market and see what is available elsewhere.

I knew there would be a fee but I was expecting something up to around £ 2 500 I suppose.

When the C&G advisor said that the fee is £ 9 000 I nearly fell off my chair!

I think they work it out as 5% of the outstanding amount, but still, that's huge, and it lasts until May 2014!

So my question is, is this normal? I'm sure we signed up to it but I certainly wasn't aware of the rate and terms of it or fully informed of the impact of it.

I look forward to hearing what people have found themselves,
thanks,
Paul

IHateDida

Ours is also 5% of the balance with Barclays (Woolwich) - we have 6 years left to go on our fix!

But you have to weigh it up - theres a calculator on here as a sticky at the top of this forum that gives you the option to see whether its worth paying your early repayment charge. 4 years ago when we moved, we ended up paying to get out of our fixed rate as it was worth our while financially over the mortgage term.

Thrugelmir

jkpaul wrote: »

We were previously with Northern Rock and they persuaded us in Apr 2009 to switch to a Lloyds TSB / Cheltenham & Gloucester mortgage.

Yes 5% is reasonable for an ERC.

Next time read the small print.

herbiesjp

It's not really small print.

It is in section 10 of the illustration and the offer letter.

It is explained in both a percentage and in monetary terms, and shows the maximum that could be repaid

I doubt it could be any clearer.

shortchanged_2

Yes this is quite normal. Most lenders fixed rate penalties either drop each year until the deal is complete OR have a fixed % for the term of the mortgage. You really should have been aware of this when you took the mortgage out, particularly with such a large mortgage.

dimbo61

You are on a good long term fix so overpay if you can.

Thrugelmir

herbiesjp wrote: »

It's not really small print.

It is in section 10 of the illustration and the offer letter.

It is explained in both a percentage and in monetary terms, and shows the maximum that could be repaid

I doubt it could be any clearer.

By small print I meant both the product literature and contractual paperwork.

Many people seem to spend far more time with attention to detail buying a car than choosing a mortgage.

With a mortgage all thats seems to matter is how much will it cost next month. With no thought to the future.

herbiesjp

Hi Thrugelmir

My response was not aimed at you.

It was aimed at the post by the OP:

So my question is, is this normal? I'm sure we signed up to it but I certainly wasn't aware of the rate and terms of it or fully informed of the impact of it.

The impact of the penalty is fully disclosed in both the illustration at the outset and then again in the offer letter.

Thrugelmir

herbiesjp wrote: »

Hi Thrugelmir

My response was not aimed at you.

I know. I was merely expanding upon my brief initial comment following yours.

kingstreet

For those wondering about current C&G five year fixed rates, the ERPs appear to be either;-

5/5/4/3/2

or

5/4/3/3/2

each figure representing a % of the amount repaid.

dunstonh

When the C&G advisor said that the fee is £ 9 000 I nearly fell off my chair!

I'm surprised as you should have known that from your statements and your contract.

So my question is, is this normal? I'm sure we signed up to it but I certainly wasn't aware of the rate and terms of it or fully informed of the impact of it.

The ERC is clearly written on C&G docs and has been for a very very long time. It was on both the old C&G offer letters and the KFI and clear print.

You cannot expect to have special terms offered without a tie in.