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

MarkyMarkD

There's no commercial sense in NW doing what you want. I'd go further and say that any lender allowing you to do what you want is "off their trolley".

The ERCs on most fixed rate mortgages are SIGNIFICANTLY below what they should be if "fairly" priced. In other words, the lender will almost always lose more by allowing you to redeem early, than they'll collect under the ERC, because prevailing rates have fallen so much further than any normal expectations when the products were priced.

runboy

MarkyMarkD wrote: »

There's no commercial sense in NW doing what you want. I'd go further and say that any lender allowing you to do what you want is "off their trolley".

The ERCs on most fixed rate mortgages are SIGNIFICANTLY below what they should be if "fairly" priced. In other words, the lender will almost always lose more by allowing you to redeem early, than they'll collect under the ERC, because prevailing rates have fallen so much further than any normal expectations when the products were priced.

Fair comment. So why do NW charge such a "low" ERC then? If they can charge more and not be questioned about any "ethics" or "overcharging" why don't they? My point was that they are happy for me to pay the ERC and go elsewhere but not pay them the ERC and keep my continued custom (and I presume profit?).

dunstonh

So why do NW charge such a "low" ERC then?

Why does any company choose to make charges at a given level. Maybe in this case, the financing NW were able to obtain to cover the mortgages was not as expensive compared to others (whether it be financed by savers or by institutional investors).

My point was that they are happy for me to pay the ERC and go elsewhere but not pay them the ERC and keep my continued custom (and I presume profit?).

The profit would be lower and as you would not be re-underwritten using todays standards, they would face a higher risk. A risk they have priced into the existing product. If you go elsewhere, they will using current lending criteria on you. A new customer to NW will have current underwriting applied to them. However, you as an existing customer does not have current underwriting applied to you. It can actually be better for lenders to encourage people to leave them than to stay with them.

MarkyMarkD

ERCs were generally set by most lenders at around 3% of balance, at a time when the expected volatility in interest rates was relatively low.

As rates fell dramatically, way in excess of expectations, the original ERC pricing was wrong.

But, ironically, it's now probably excessive because there is no risk of rates falling much further!

It's better to say "no" to a borrower leaving a profitable old fixed rate, paying an ERC, and moving to a less profitable new rate, than to allow them to do so, simply because most people won't do so.

That's because the costs of the move will prevent enough people from saving money by doing so, and so the majority will simply stay on their old profitable rate.

I guess you are going to prove the point by actually staying with them, and that the imaginary threat of leaving them is just that?

grissom123

Hi all,
I was wondering if there are still things like 100% mortgages.
I have a good job and a good wage, but i am unable to save the kind of money that the banks want for the deposits.
Any good advise would be welcomed.

dunstonh

I was wondering if there are still things like 100% mortgages.

No there isnt.

For future reference, its best to post your questions to a new thread of your own and not to an existing thread on an unrelated topic. It makes for messy reading otherwise.

wangtao

There's certainly no way of remortgaging when you are tied in, without paying the ERC.

If your lender say no, there's no reason why they should be required to say yes.

smorgo

MarkyMarkD wrote: »

What is an ERC?

An ERC is an Early Repayment Charge, which is FSA mandated terminology for a charge made when you redeem your mortgage during a mortgage's ERC period. . The ERC period may be the same as the fixed or discounted term, or it may be longer. Normally it is not the same as the total repayment term of your mortgage.

I understand from all that I've read here that ERCs are perfectly legitimate charges.

However, we're just looking to remortgage and we're currently 13 years into a 25 year term with West Bromwich. The mortgage is SVR, with no discounted period and no fixed term.

The redemption summary includes an ERC which "applies for the remaining term". As MarkyMarkD says in his post, that's normally not the case.

Now, the ERC is only £229, so it's not going to break the bank. But, well, it's not very nice, is it? I'm tempted to argue over it with West Bromwich, although they're entitled to levy it. Am I being unreasonable?

Oh, the mortgage is in my wife's name only. She took it out before we got together all those years ago and her broker, frankly, was ^H^H^H^H not very good

_Andy_

smorgo wrote: »

I understand from all that I've read here that ERCs are perfectly legitimate charges.

However, we're just looking to remortgage and we're currently 13 years into a 25 year term with West Bromwich. The mortgage is SVR, with no discounted period and no fixed term.

The redemption summary includes an ERC which "applies for the remaining term". As MarkyMarkD says in his post, that's normally not the case.

Now, the ERC is only £229, so it's not going to break the bank. But, well, it's not very nice, is it? I'm tempted to argue over it with West Bromwich, although they're entitled to levy it. Am I being unreasonable?

Oh, the mortgage is in my wife's name only. She took it out before we got together all those years ago and her broker, frankly, was ^H^H^H^H not very good

It's an exit fee not an ERC.
If it was detailed in the mortgage offer then yes you are being unreasonable.

MarkyMarkD

£229 doesn't sound like an MEAF from 13 years ago - it's too high.

It sounds more like a (not very common) condition in the mortgage which requires payment of a month's interest (say) for early redemption at any time, in other words a slightly unusual form of ERC.

As Andy says, though, if this was referred to in the mortgage offer then it is due for payment.