Can I avoid Early Redemption Penalty by overpaying now?

Windsorcastle

Can anyone please explain whether there is anyway to avoid ERP? My 2 yr fixed rate with Halifax ends on 30th September but my sale is likely to complete in mid-August.

Is there any way of reducing the ERP seeing as I'll be within 2 months of the fixed-rate period? I was thinking if I repaid whatever amount would be the equivalent of my mortgage up to my exit date, then they would be getting the same amount of money, wouldn't they? Obviously they would want to calculate the interest they would miss out on and add that on.

Is this feasible, or what can anyone suggest? Presumably people are exiting fixed rates early all the time; are they really all getting stung for the ERP? Any advice please?

GMS

Are you buying a new property? If so could you apply to port the product to the new property then look to change it later on?

You agreed to the T&C's of the product when you took it so can't get any part of it waived because you no longer like them.

Overpaying above the maximum allowed as per the product would incur ERP on the amount above anyway so wouldn't help.

ValHaller

Windsorcastle wrote: »

Is there any way of reducing the ERP seeing as I'll be within 2 months of the fixed-rate period? I was thinking if I repaid whatever amount would be the equivalent of my mortgage up to my exit date, then they would be getting the same amount of money, wouldn't they? Obviously they would want to calculate the interest they would miss out on and add that on.

The mortgage professionals here will tell you you cannot do this, but to my mind it is perfectly reasonable, given that the reason for the ERC is the costs of funding fixed term borrowing by the mortgage lenders. If you pay as you say, there are no lender's losses to be covered.

holly_hobby

The ERC is a contractual term - if you repay the mge (without porting the product), or pay off more than the permitted annual 10% whilst within the ERC term - then the ERC is invoked.

I am afraid it is what it is .

Hope this helps

Holly

kingstreet

The penalty is paid to compensate the market counterparty which provided the rate swap for the agreed period. If the mortgage is repaid early, the lender has to pay the penalty and reclaims it from the borrower.

As suggested, port the rate to a new mortgage and avoid the penalty, or ask the other parties in the chain to agree to a longer completion and perhaps offer them an incentive to do so?

ValHaller

kingstreet wrote: »

The penalty is paid to compensate the market counterparty which provided the rate swap for the agreed period. If the mortgage is repaid early, the lender has to pay the penalty and reclaims it from the borrower.

Exactly. And if OP pays the monthly mortgage payments to the end of the ERC term and pays off the mortgage early, there is no loss to the market counterparty.

ERC should be capped at the amount of monthly payments to the end of the the ERC period.

sammyjammy

ValHaller wrote: »

The mortgage professionals here will tell you you cannot do this, but to my mind it is perfectly reasonable, given that the reason for the ERC is the costs of funding fixed term borrowing by the mortgage lenders. If you pay as you say, there are no lender's losses to be covered.

But the house would no longer belong to him, no chance lender or solicitor would let this happen.

Thrugelmir

ValHaller wrote: »

ERC should be capped at the amount of monthly payments to the end of the the ERC period.

Irrelevant as to what it should be. What the contract says is what matters. As that's the terms the 2 parties agreed to at the outset. Worthless piece of paper if either party could amend the terms to suit their circumstances.

ValHaller

sammyjammy wrote: »

But the house would no longer belong to him, no chance lender or solicitor would let this happen.

Missed the point. The argument for the ERC is lender's losses. Ding what OP suggests covers those losses. I am not arguing that it would be allowed. I am arguing that in circumstances such as those of the OP, the ERC is excessive in relation to the reason given for it.

Windsorcastle

Thanks all. I am not making an onward purchase at this time, as I live elsewhere, and the buyer is a FTB. So I expect the sale to go through relatively quickly and don't feel it's fair on the buyer to drag my heels for an extra 7/8 weeks to reach the end of the fixed deal.

I rang Halifax yesterday who were incredulous at my suggestion to overpay the monthly payments due to the end of the fixed term, and they kept repeating that the ERC is charged regardless.

Looks like that's the answer then - thanks for everyone for trying to help.

Thrugelmir

Windsorcastle wrote: »

Thanks all. I am not making an onward purchase at this time, as I live elsewhere, and the buyer is a FTB. So I expect the sale to go through relatively quickly and don't feel it's fair on the buyer to drag my heels for an extra 7/8 weeks to reach the end of the fixed deal.

Are your purchasers currently renting? As they will have to give notice if they are. So the time might disappear sooner than you think.