ERC at end of fixed deal

dunstonh

Do prior decisions bind subsequent FOS deliberations?

No. Each complaint is looked at on its own merits. Sometimes you get bewildering decisions from the FOS as well.

However, they do appear to have accepted the funding/cost model that exists with deals and why the ERC exists. The last paragraphs about reasonable pre-estimate appear on many of the FOS outcomes, almost word for word.

Thrugelmir

TrickyDicky101 wrote: »

A single mortgage is also highly unlikely to represent an entire funding tranche arranged by the bank.

Lenders bundle a particular product into a tranche though.

Then the argument becomes why shouldn't everybody receive the same treatment. Which then defeats the object of fixed term products and the very transparent contractual terms.

TrickyDicky101

I wonder if an angle to take would be to quantify the actual loss to the lender along the lines of:

1. Interest is limited to less than 30 days (because all payments under the fix had been made)
2. Any 'cost' inherent to the bank needing to 'safeguard' the early repayment of the mortgage balance until end of the fix
3. Some recompense for the administrative burden imposed by early repayment (which I would assume would be relatively small)

It would be interesting to see how the result of such a calculation compared to the actual ERC.

However, if the FOS for example were to follow the decision in Dunstonh's linked post, then the above would largely be irrelevant since the ERC was a reasonable pre-estimate of cost at the time the mortgage was taken out and the OP was aware of this (and signed the mortgage agreement).

TBeckett100

Im heading in the same boat on this. It is a tad unfair when the "interest only" element of the mortgage payment between redemption and the end of the fixed rate is less than the ERC.

TCA

Extreme novice query:

I understand the ERC for fixed rate products within the fixed rate period. It appears that many mortgages (except offset mortgages?) allow a 10% overpayment every year. Is a borrower penalised for settling a fixed rate mortgage after the fixed rate period and before the end of the mortgage term? Or for that matter at any time for a variable rate mortgage before the initially agreed term ends?

TrickyDicky101

TCA wrote: »

Extreme novice query:

I understand the ERC for fixed rate products within the fixed rate period. It appears that many mortgages (except offset mortgages?) allow a 10% overpayment every year. Is a borrower penalised for settling a fixed rate mortgage after the fixed rate period and before the end of the mortgage term? Or for that matter at any time for a variable rate mortgage before the initially agreed term ends?

Hi. It depends on the specifics of the mortgage agreement (contract) entered into but broadly speaking after the fixed period has ended you are able to make any number of penalty-free overpayments (including repaying the mortgage completely).

TCA

TrickyDicky101 wrote: »

Hi. It depends on the specifics of the mortgage agreement (contract) entered into but broadly speaking after the fixed period has ended you are able to make any number of penalty-free overpayments (including repaying the mortgage completely).

Thanks for the quick reply. Just as a guide I was looking at what my own bank (RBS) is offering. On their fixed rate products and tracker products, excluding the ERCs during the fixed rate/tracking period, their wording is:

Overpayments permitted: 10% of outstanding mortgage balance each year without extra charge

I was confused as to whether repayment in full after the initial period was classed as an overpayment.

TrickyDicky101

This link here to the RBS FAQ would appear to confirm that if on the bank's SVR (ie outside of the fix) then there is no ERCs/fees to pay:

https://www.supportcentre-rbs.co.uk/app/answers/detail/a_id/4133

TCA

TrickyDicky101 wrote: »

This link here to the RBS FAQ would appear to confirm that if on the bank's SVR (ie outside of the fix) then there is no ERCs/fees to pay:

https://www.supportcentre-rbs.co.uk/app/answers/detail/a_id/4133

Excellent. Thanks, I hadn't seen that. If this is more or less standard practice (i.e. no ERC on SVR), then this gives me a better idea of how these deals generally work.

Thrugelmir

TBeckett100 wrote: »

Im heading in the same boat on this. It is a tad unfair when the "interest only" element of the mortgage payment between redemption and the end of the fixed rate is less than the ERC.

It's not a question of fairness. It's an agreed contract between parties. Since when should people be able to pick and choose what they wish to accord with ?

You'd be up in arms if your employer didn't pay you on pay day. Same principles apply.