Mortgage Redemption Fees

artlaw

Does anyone know if a mortgage redemption fee is different from a mortgage exit fee. My current lender is going to charge me 6 per cent of my total loan to pay off the mortgage early. This is a massive £6000 approx., (quite a big chunk out of my equity). Are they legally allowed to do this? and is there any way I can get aroung it? Here's hoping !!!

dunstonh

They are legal and quite correct and there is no chance of getting out of it.

It was part of the terms of the contract that you went into knowing this and got benefit from. Most early redemption charges are a reflection of the benefit received to date along with the extra costs involved in giving you that benefit.

Don't take this the wrong way but if you knew there was a chance that you would be repaying the mortgage early, why did you choose a deal that has a tie in?

Also, it should be noted that mortgage redemption fees are allowed. It's been the increase in the amount over that in the offer letter that has been the issue there and its the difference that people have been getting back. Your early redemption charges were specified in the offer letter and your solicitor would have pointed these out to you before you signed the contract. If you didnt use a solicitor (which is becoming more common nowadays - in the past nearly 99% used a soliticor) then you took on responsibility for knowing the terms before you signed.

cheersthanksbye

Just read this and I must stress I am not a mortgage expert (come on here to research my own mortgage). But, could you not pay most of it off and leave say a token £100 outstanding so you avoid the redemption fee?

dunstonh

It wouldn't avoid the ERC.

The OP has taken a special deal which costs the lender in some way. i.e. a 5% cashback given at the start with a 5 year tie in. Would it be fair for someone to borrow £100k, be given £5,000 as a cashback and then a week later pay the mortgage off without having to repay that £5,000?

You can replace cashback with discount (a 1% discount for 5 years is like a 5% cashback up front) or low fixed rate. All of which involve the lender subsidising the borrowing.

dwsjarcmcd

Assuming that you are moving to a new property, and your mortgage is at least the same as your current loan, then you should explore 'porting' your loan with your current lender. That means moving your new mortgage to your new property and taking any additional borrowing on one of their current range. As they say, 'terms & conditions apply' so speak to your current lender.
If your moving for a better rate, you'll do well to save £6k in reduced payments!!

dwsjarcmcd

cheersthanksbye wrote: »

Just read this and I must stress I am not a mortgage expert (come on here to research my own mortgage). But, could you not pay most of it off and leave say a token £100 outstanding so you avoid the redemption fee?

This can only happen when you are paying off your loan and don't need another and also the mortgage needed to allow unlimited overpayments, which the minority do