How do ERCs work?

gz33zg

Hi all - looking for some advice on how ERCs/remortgage would work.

Currently with Nationwide - 5 years left on a 6.79% fixed mortgage (taken out in 2007), 184k left against a property worth (a pessimistic) 225k.

Looks like we may be coming in to some money and, having looked at all other options, paying off a lump of the mortgage and remortgaging to a lower rate is the most sensible for us.

Now we will have 60k to knock off the mortgage, and there is a 6k ERC on our deal.

So how does it work it practice?

Do we pay 60K into our nationwide mortgage and this will leave us with £130k balance (184-60+6) which we can then remortage away at our leisure?

Or would that trigger 2 ERCs? i.e. 1 when we pay the lump sum in and a second when we settle the account and remortgage away?

Thanks,

Tim

kingstreet

In practice, the penalty is expressed as a percentage of the amount you repay.

For example, it may be 5% of the amount redeemed. Therefore if you redeem all the mortgage, you'll pay 5% of the whole mortgage amount.

If you repay £60,000, you'll pay a penalty of 5% of that £60,000.

If you repay £60k, then do a full redemption by remortgaging, you'll still only pay penalties totalling 5% of the full mortgage amount. You'll simply pay it in two chunks, instead of one.

gz33zg

Aha, thanks - I have only ever seen the ERC quoted as a fixed value - but that would make sense - will re-visit the documentation tonight.

dimbo61

Please read the T&C,s of your mortgage offer carefully or give the Nationwide mortgage centre a call and ask them.
Nationwide will not offer you another deal if you want to leave your current fix!
Now when you talk to them you could ask if you could reduce the term
I paid my lender £50 to do this!!
I guess you have 20 years left on your current mortgage term ( 10 year fix) hence 5 years left?
Now if you reduced the term from 20 down to 8 years your mortgage payment would increase to about £2489 a month.
You could use the £60K in the bank ( cash ISA,s and other savings ) to drip feed the extra each month while still keeping the Emergency savings until the 5 year fix is finished.
This idea means you do not pay any ERC,s and remortgage costs and have the security of a 5 year fix while reducing the mortgage debt
Good Luck

dimbo61

Looking on the Nationwide website it does indicate that you pay a % of the outstanding amount so if you leave Nationwide you will pay 5% ? of £184,000 so over £9000 ERC. OUCH !
Check what you deal said about ERC,s

Gary123456790

gz33zg wrote: »

5 years left on a 6.79% fixed mortgage (taken out in 2007)

If it was a 5 year deal started in 2007 then surely you are out of the fix by now and on the Standard Variable rate, or in a new fix?

If you are on the SVR you can probably overpay as much as you like.

Gary.

gz33zg

Thanks dimbo61 - worth thinking about the drip feed option, I will plug some numbers into a spreadsheet, but I'm actually thinking of remortgaging to a lower rate AND reducing the term - I very quickly save the 6k early redemption charge if I can secure a new deal below 4%.

Thanks Gary - sorry wasn't very clear - it was a 10 year deal back in 2007 of which there are the best part of 5 years remaining.