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

MFSaver

Hi, a quick question about HSBC ERC calculation.

For my mortgage, it states that "The ERC is 1% of the amount repaid early for each remaining year of the fixed rate period, reducing on a daily basis." Am I correct in thinking that the term "reducing on a daily basis" means that the ERC will be pro-rated?

For example, I have six months to go until the end of my fixed rate period. 1% of my mortgage is 1,000 pounds. Therefore, if I were to pay off the mortgage right now, my ERC will be less than 1,000 pounds since it is pro-rated according to the "reducing on a daily basis" term. Does anyone have any experience with a similar situation?

I plan to call HSBC on Saturday (which is my next available free time coinciding with their opening hours), but would like some peace of mind when I crunch some numbers tonight and tomorrow night.

dunstonh

Am I correct in thinking that the term "reducing on a daily basis" means that the ERC will be pro-rated?

It certainly reads that way.

nthomas

Thank you for all the useful advice!

Butterscotch-

How do ERC get paid? I noticed earlier someone mentioned debit card. Is this better than it being added to the payment when I pay off my mortgage?

dunstonh

How do ERC get paid?

Its included in the redemption figure the lender gives the solicitor.

wilsondean1

i was wondering if some one can help.

we have a 5 yr fixed on a 6% deal with 2 years left on it, and is a tie in deal. were totally sick of our neighbours and feel the time to move is upon us. we want to move to a bigger place which is around the £230000 mark but our current mortgage is £140,000. Could some one be nice enough to offer some advice as to what we can do and where we stand with our mortgage tie in, e.g if we move can we borrow more and what happens to the tie in.

any help would be great

regards

dean

MarkyMarkD

Hi Dean - no problem.

Your existing lender will expect you to either transfer the mortgage (i.e. the remainder of the 5 year fixed rate at 6%) to the new property, and borrow the extra £x,000 at whatever new rate they want to ask for, or to repay the mortgage and pay the ERC.

If your income or credit status isn't good enough, they might refuse to lend you the money on the new property, and if so, you'll have to pay the ERC and take a new mortgage elsewhere - if someone else will lend you the money, that is.

Generally speaking, if you are good for the credit, then it's going to be OK to move the mortgage and borrow more. But given that the rate is pretty high, it might be better to pay the ERC off and simply get a completely new mortgage elsewhere on new customer terms.

You need to compare (£140,000 x 6% + £x,000 x your lender's new rate) with (the whole new mortgage x the whole new mortgage rate you could get elsewhere), multiplied by 2 as it's 2 years to go on the tie-in.

But of course if you move it to a new lender now, you'll save any risk of wanting to move it again in 2 years.

Another important point to consider is what rate your existing fix will go onto on maturity. It could be a low tracker revert rate - maybe BBR+1%, or currently 1.50% - if it's certain lenders; or it could be a cheap SVR (maybe 2.50% for some lenders); or it could be a more normal SVR.

It would be a shame to throw away a very cheap revert rate, for the sake of saving money for a few years, if you truly have the choice.

Chances are, though, that any top-up mortgage would NOT get this cheap revert rate.

xtra_time

I have a 2 year ERC window which started in July. I have some money so could pay 10% this year and 10% next year but they will lower the monthly payments. I take it this would be better than waiting until the ERC is up and paying the lump sum then? ie the sooner the extra money gets paid the better savings overall.

MarkyMarkD

Depends whether the rate on the mortgage is more than the rate you could earn by saving the money elsewhere (after tax, unless you are exempt or don't use up your ISA allowance anyway). But assuming the rate is higher, it's always going to be better to pay off the maximum earliest in terms of interest saved.

I assumed that you are allowed to overpay 10% per annum without ERC from your question.

xtra_time

MarkyMarkD wrote: »

Depends whether the rate on the mortgage is more than the rate you could earn by saving the money elsewhere (after tax, unless you are exempt or don't use up your ISA allowance anyway). But assuming the rate is higher, it's always going to be better to pay off the maximum earliest in terms of interest saved.

I assumed that you are allowed to overpay 10% per annum without ERC from your question.

Yes its 10% per year without ERC. Thanks