ERCs- Early Repayment Charges - early exit fees. (merged).

MarkyMarkD

The lender will have swapped out the interest rate risk. Whilst they are receiving 10.875% from the charity, they have likely swapped out at around 9% and will be receiving LIBOR. That means that overall they are making around 3% income on the loan, not the 10.875%.

And to get out of the deal, they would have to enter into a 40 year swap, receiving current 40 year swap rates (maybe 5%?) and receiving LIBOR.

That would mean that they would lock in a loss of almost 6% pa, for 40 years, on £50,000 = over £100,000. After discounting this to present values, it might be around £50,000.

In other words, the ERC they are asking for is fair, as long as it is described appropriately in the contract terms.

elliebear

If your mortgage is with GE Money they are allowing some people to leave thier mortgage with no redemption payable.We saved £5,000 but this offer is not available to everyone , so check. Ours was on a fixed term but only have 10mths left of this.

rawsurf

Hi there everyone... Newbie here looking for advice...

I work as an IT contractor and the nature of the contracting world is that every couple of years or so I change the way I pay myself to maximise my Tax Planning capabilities.

Now (Since October 2008) I operate via a Ltd Company – however my current mortgage lender (who I have been a loyal customer with for over 15 years – never missing any payments) will not consider me for a new mortgage application because until October 2009 I do not have 1 years Ltd company accounts!

OK rules is rules – but my lender says if I sell my current property the ERC will apply – even though they cant offer me anything - with the same mortgage lender back in the 90’s I finished a fixed term mortgage early to go and live in Australia – at that time the lender informed me that because they could not offer me a product they could not charge me any ERC!!!

Does anyone have any advice or experiences on a similar situation?

Thanks Rawsurf...

MarkyMarkD

There was no reason why they should not have charged you the ERC the first time around; there is certainly no reason why they should not charge you one now, either.

They have clearly become less lenient in such cases.

macqan

MarkyMarkD -

ERCs after the event:
I accept that lenders must protect themselves in the event that a borrower's early repayment leaves them out of pocket and most people exit fixed period loans to take advantage of more generous terms elsewhere.
However, I have a very generous 2 year interest-only tracker loan (well below APR) with Nationwide, which ends in 6 weeks. I have just had to sell my flat as I need to make an IHT payment and I complete in 2 weeks. I will now rent for the next 12 months or so.
Nationwide would actually benefit through my early repayment as no other offer currently on their books comes close to the generous terms of my loan. But they insist on a draconian ERC.
I have suggested that I pay the remaining interest payment (there is only one – less than a tenth of the penalty), but the initial response is negative.
It seems as though I can’t legally delay repaying the capital from the property sale, so it seems I am ‘forced’ to repay early.
Any suggestions as to how I might persuade Nationwide to soften their stance?

dunstonh

A line has to be drawn in the sand at some point. It may seem draconian to enforce it with just 6 weeks to go but lets say they universally reduced their ERCs by 6 weeks. All those then finishing 6 weeks before that would want to be let off as well.

You are totally reliant on the goodwill of Nationwide. They are not known to be unreasonable for rules sake so you may get lucky. However, you have said yourself that you have had benefit from a very generous tracker. So, its not all bad news.

MarkyMarkD

As per Dunstonh's comments, there is no reason for Nationwide to be lenient.

The fact of the matter is that almost all mortgage deals are loss-making during their incentivised term. Charging an ERC during just that term doesn't cover the loss for the lender - and letting you walk on day 731 of a 2 year deal doesn't give them any profit either.

So, leaving early makes them a lot more than leaving on day 731. That's just hard luck.

I can't really see that there is much reason to expect any sympathy given that the only reason you "have" to sell is that you've had a large inheritance and hence incurred an IHT payment. Am I missing something, or have you inherited a large asset (e.g. a property) which you cannot quickly realise and is that the real problem?

wolboy

Hi People

Was looking for some expert suggestions as I am new to all this Mortgage Jargon to be honest.
My girlfriend currently has a mortgage with abbey and has just sold her flat within the two year erc time frame and has just got a bill for £3456.
Now this is fair enough to a degree but we have just signed a joint mortgage with Abbey again for a bigger mortgage all at the same time.
On there site and i will add the link at the bottom it states if you take out another mortgage or port your old mortgage these fee's will be exempt!!
I have just written to abbey asking about this but have heard nothing as yet but just seem's excessive paying them 3k when we have just got another mortgage for 100k more than the last one, Any help would be appreciated.

Regards
Wayne

dunstonh

On there site and i will add the link at the bottom it states if you take out another mortgage or port your old mortgage these fee's will be exempt!!

That is normally correct if you port the deal to the new property and take a different deal on the increased borrowing. However, if you choose to change the whole mortgage to a new deal the ERC will apply.

I have just written to abbey asking about this but have heard nothing as yet but just seem's excessive paying them 3k when we have just got another mortgage for 100k more than the last one, Any help would be appreciated.

Did you buy the mortgage under advice or direct to provider (without advice)? If under advice, were the options presented to you?

MarkyMarkD

Agreed. Exactly as Dunstonh says - the first question that any adviser should have asked you is whether you had an existing mortgage (which you did) and whether you were subject to an ERC (which you were).

If you simply bought the new mortgage yourself, without advice, you might now be realising the value of advice as it could have saved you £3,456.

Even more so - the old mortgage deal might have been better than the one you've now got. You might have avoided up-front costs which the new mortgage has. etc. etc.

If, indeed, you did buy the new mortgage through a mortgage adviser than that adviser has numptied it up something rotten (assuming you explained all the facts) and you need to get them to try to sort it out PDQ.

Your timing isn't clear - did the two mortgages redeem and complete simultaneously, or did you actually buy the new property first? You can't port before redeeming the original mortgage, IMHO, so the whole debate might be academic.