Early Repayment Charge - Nationwide

soulvacation

Hi,

I am currently looking at getting a mortgage with Nationwide. We have a DiP already with them, and will be putting an offer in on a house tomorrow which hopefully will be accepted (we are offering the full asking price!).

What we will be applying for (if our offer is accepted) will be an 89% LTV 35 year mortgage, either 2 year or 4 year fixed rate. We have a Save To Buy account too.

The 2yr fixed mortgage is advertised with an ERC of "2.00% of the amount repaid".
The 4yr is advertisied with an ERC of "3.00% of the amount repaid".

1st question: What is meant by "early repayment"? Does that mean repaying before the fixed rate deal ends, or before the 35 years is up?!

2nd question: Let's say we choose the 4yr fixed rate, but for some reason we want to repay after 2 years. For simplicity's sake let's say we took out a 130K loan and have 125K left after 2 years. We have repaid 5K - so does this mean the repayment charge is 3.00% of 5K? Sounds too cheap to me, but I'm confused about the phrasing on their website.

Any help would be appreciated - thanks!!

JustinR1979

It's for paying the mortgage off, unless you get lucky I doubt you will!

HHarry

The ERC is a fee payable if you pay off all or part of your mortgage - above the normal monthly payments - within the fixed period.


So make your normal payments and there's no problem. Gain an inheritance next year, and want to pay off £50k? Then you'll have to pay the ERC on the £50k.
Mortgage rates tumble (!!!!) and you want to re-mortgage next year to a better rate? Then you'll pay the ERC on your mortgage balance at that point.


Many mortgages allow you to make some over-payments (say 10%) without incurring an ERC, and sometimes the ERC is tapered - so it's 3% in year 1, 2% in year 2 etc.


So for Q1 - It's for repaying during the deal period, once you revert to the standard rate you should be fine.


Q2 - Yes, if you want to repay in 2 years you're going to get stung for the ERC on the balance of your mortgage (in your example 3% of £125k)

amnblog

The early repayment charge is payable on any amount repaid within the fixed term period.

This would not include anything you had paid off as part of your normal monthly repayments.

For example is you borrowed £160,000 on a three year deal. Had £150,000 left after 2 years and then sold the property paying off the mortgage your would be charged 3% of £150,000 = £4,500.

Lenders will typically let you 'overpay' within certain limits without incurring any penalty. Also, if you 'port' the deal on to a new property' should you move, you can avoid the penalty.

Section 10 of your mortgage illustration will outline an example of early repayment cost.

soulvacation

Thanks very much for your explanations! I understand now