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

dunstonh

Would I be able to get assistance from my mortgage company to pay the 2700 I don't have. It's the early payument charge that is killing me.

If you have been in arrears or your main banking is with them and they know you are having problems, then they may come to some arrangement with you. If you dont ask you dont get.

MarkyMarkD

hshen wrote: »

Hi MarkyMarkD and dunstonh,

I read through the whole thread and there are definitely some interesting posts here.

I am a FTB about to take up a first mortgage on a property I'm buying and I want to check my understanding of the ERC terms are 100% correct.

These are in my KFI:

Section 10. Early repayment charges

Early repayment charges are payable if you repay part or all of this mortgage on or before
30/11/2012. See the table below for details.

3% on or before 30/11/2011
2% on or before 30/11/2012

Section 11. Overpayment

You are free to make lump sum or regular overpayments to this mortgage at any time. For
details of any early repayment charges that may apply please refer to Section 10.

Currently, as a concession, in any 12 month rolling period you may repay up to 10% of the
amount outstanding on your mortgage product(s) without having to pay an early repayment
charge. The lender reserves the right to change or withdraw this concession.

My understand (please correct me if I'm wrong)

1. Lender goes on a 12 month rolling period. Each rolling period is started by the first overpayment.
e.g. if I made my first overpayment in 1/2/2011, I can only overpay 10% between 1/2/2011 - 30/1/2012,
and I have effectively forfeited my overpayment allowance between completion and 1/2/2011.

2. The 10% overpayment allowed in any 12 month rolling period is calculated at the start of the 12 month rolling period.
e.g. if I start my first overpayment in 1/2/2011, and the balance of the loan on 1/2/2011 is 140,000. I can overpay 14,000 in the 12 month rolling period to 30/1/2012.

3. Any overpayment made above the 10%, in a 12month rolling period, before 30/11/2012 will be charged an ERC.

4. The ERC will be charged on the amount over the overpayment allowance in the 12 month rolling period.

e.g. if I only overpaid by lump sum of 24,000 on or before 30/11/2011 and I have an allowance of 14,000, I will be charged 300 which is 3% on the 10,000 over the allowance.

and if I only overpaid by lump sum of 23,000 on or before 30/11/2012 and I have an allowance of 13,000, I will be charged 200 which is 2% on the 10,000 over the allowance.

5. The lender can withdraw the 10% overpayment allowance at any time.
If so how much notice will they need to give me? And how likely in your opinion is this likely to happen between now and 11/2012?

Thanks for you time,

I don't exactly see what your issue is, nor why malchish thinks this is a big deal.

It means that you can pay off 10% of your capital, over and above your contractual capital repayments, in any one 12 month period.

Obviously if you don't use it in any 12 month period, you've lost it. Any other understanding would make no sense.

But a 10% period for any 12 months is more generous, not less generous, than a restriction of 1/12 as much in any month, because it does allow you to choose between paying even monthly amounts of 0.83% of balance or annual lump sums of 10% of balance.

MarkyMarkD

country_mover wrote: »

Here is a little sum for you to work our MarkyMarkD

3 X £464 =

How much would you have left if you took the total above away from £1530.00

I now know what the D stands for

Simply because your ERC is greater than the remaining payments during your fixed rate term doesn't make the ERC illegal or unfair.

I can see why you think that it does, but it doesn't in legal terms.

The reality of most mortgages is that the lender makes very little profit indeed (or a loss) if the mortgage is redeemed exactly at the end of the fixed rate term.

Mortgage products are not priced on the basis that they make money over the fixed rate term. They are priced assuming that the average borrower stays with the lender for the fixed rate term plus quite a few years longer.

ERCs recover some of the shortfall in profit against that expectation.

The FOS have said that it is OK to work out ERCs on an "average of all customers" basis. That obviously means that some customers win - those who redeem their 3 year fix after 3 years and 1 day - and some lose - those who redeem their 3 year fix after 3 years less a few days or, like you, a few months.

Your choice, 33 months ago, would have been to choose a fixed rate with an ERC (which could have been a shorter-term fixed rate - nobody made you choose 3 years) or a variable rate. Obviously, with hindsight, a short-term fix or a discount or a tracker would have been a better deal for you. That's the benefit of hindsight.

But it is the individual's responsibility to buy products suitable to their circumstances. If you cannot guarantee wanting to have a mortgage, on a particular property, for a particular length of time, then it doesn't make any sense to buy a mortgage with an ERC simply because it's cheaper than others without.

SellyOakBlade

Quick question (which I have already asked my bank but am aweaiting an answer)

I'm on a fixed rate which is due to expire at the end of August 2011.

Will my bank let me "book" one of the fixed rate deals that they have currently on offer without me hitting the ERC? Or am I going to have to wait until nearer the FR expiry date?

I don`t mind booking teh rate and not being moved over to it until August, but with rates likely to rise in the future I'd rather jump on the current deals before they disappear...

My bank are HSBC.

MarkyMarkD

They are very unlikely to let you book a deal now at current rates. It's too far in advance.

Meeper

Generally book funds about 3 months in advance.

SellyOakBlade

Had a phone call from them, 5 weeks before expiry apparently...

malchish

If someone redeems the fixed mortgage , say, 3 months before the end of fixed period, any charge should not exceed the total of 3 usual monthly payments!
Any charge above that will be unfair, and therefore illegal - unfair contract term.
Calculate how much you would have paid to your lender had you stayed until the end of fixed period- they cannot charge you more than this!
Because, whatever money they "borrowed at markets", if you redeem earier, they can just put this money in the bank, earn interest, plus they will receive the compensation for the monthly payments they lost.
Amonthly payment of £1000, mortgage redeemed 4 months earlier - anything above £4000 charge is unfair. However, many mortgages have "4 percent of balance" charge not decreasing. This is ridiculous, and unfair, and will be considered illegal if tested.
Posters, remember - mortgage advisers eat their bread from the hands of lenders. No mortgage adviser would be on the consumer's side against the lender". Think of them as "used cars salesmen", the credibility of their advice about ERC is ZERO.

Meeper

Amonthly payment of £1000, mortgage redeemed 4 months earlier - anything above £4000 charge is unfair. However, many mortgages have "4 percent of balance" charge not decreasing. This is ridiculous, and unfair, and will be considered illegal if tested.

Please can you provide any legal basis and/or case law to back up this statement?

Posters, remember - mortgage advisers eat their bread from the hands of lenders. No mortgage adviser would be on the consumer's side against the lender". Think of them as "used cars salesmen", the credibility of their advice about ERC is ZERO.

Interesting point of view. Advisers work on behalf of the individual, not the lender.

dunstonh

Posters, remember - mortgage advisers eat their bread from the hands of lenders. No mortgage adviser would be on the consumer's side against the lender". Think of them as "used cars salesmen", the credibility of their advice about ERC is ZERO.

I think that is unfair on mortgage advisers as they have no input on the ERC. They also do not work for the lenders and if you wanted to introduce some perception of bias then it would be that mortgage advisers would prefer not to have ERCs. Personally, as an IFA, mortgages are irrelevant. So, posters here should remember that we do get those with chips on their shoulders posting incorrect information and slagging off others to try and put you off from the facts.