Mortgage Remdemption penalties - word to the wise

Mish_Mash

I am redeeming my mortgage as my current bank won't lend me enough money to move house.

I have no issue with the redemption fee - fair is fair, I knew what I'd have to pay when I took the mortgage out.

However, I did query the calculation of the redemption fee.

My mortgage is approx 93k and I will need to pay 3% of the outstanding amount when the mortgage is redeemed (£2790). However, I raised the fact that, as I am allowed to overpay by 10% of the outstanding mortgage each year, then I should only pay 3% of £83700 (93k-9.3k=£83700) which come to £2511.

I asked the bank why I would have to pay 3% of the outstanding mortgage when technically it should be 3% of the amount that exceeds my 10% overpayment allowance. Their response was that they do not take any allowances into account when calculating the redemption fee. The only way to take advantage of this allowance is to overpay prior to redemption.

It seems a bit sneaky to me and had I not asked the question I would be approx £300 poorer.

So a lesson to anyone who is thinking of redeeming their mortgage and wants to reduce redemption fees - overpay up to the maximum allowance before you redeem your mortgage.

Don't let the banks take advantage of you.

JoeK_3

Sorry but I don't agree with you.

If the mortgage offer and mortgage deed states 3% of the outstanding balance, then that is what you have to pay.

Just because the overpayment facility existed is totally irrelevant.

JoeK

Mish_Mash

And I disagree with you. It's just a technicality which can be argued either way.

FYI - I wasn't asking you to agree with me. I was highlighting a useful piece of information which could save people hundred's of pounds.

Noz

Can see what you are saying Mish Mash, certainly makes sense to me.

The banks aren't doing anything wrong though, but its more of savvy money saving tip. Good stuff.

Jon_Davies

So, if you had a product that was fully flexible (up to £1 remaining in the account - like Northern Rock's flexi fix) you'd only have to pay 3% of the £1?

It'll never stand up.

dunstonh

Overpaying and redeeming are two different things. The redemption would apply to the full amount and quite correctly so.

inch_high

The way I see it is that the banks arent doing anything wrong. However, use the system to your advantage, if you can afford to make the maximum payments before being charged an ERC then do so.