Mortgage early repayment charge - Can it be avoided?

chris01010

Hi,


Hope someone can help. I currently have a fixed rate mortgage and am moving house. The chain needs to complete on 25/09/15 and my fixed rate ends of the 01/10/15.


So my question is do I really need to pay the early redemption fee (£1800) for the sake of 5 days or is there a way I can avoid it?


Could I just offer to pay the 5 days interest they will be missing out on or do you think that I will just have to bite the bullet?


Thanks


Chris

Contemptuous

You'd avoid the fee if you ported the mortgage, potentially.

chris01010

Thanks for the reply. Should've said that porting isn't an option because of the increase in mortgage means we no longer meet the criteria for our current lender

Yorkie1

Normally there's no way to avoid the ERC - it's a contractual thing linked to the fact that the lender has to pay a penalty if you repay the mortgage early.

You could try speaking to the lender but don't get your hopes up. Is there really no way to delay completion by a week?

chris01010

Unfortunately not. The 25/09 is a deadline as one of the mortgage offers in the chain expires then (it has already been extended).

VT82

Yorkie1 wrote: »

Normally there's no way to avoid the ERC - it's a contractual thing linked to the fact that the lender has to pay a penalty if you repay the mortgage early.

Not really true. The ERC for a fixed rate mortgage is set as a best guess of the lender's likely cost of having to break a swap if their fixed rate asset (your mortgage) disappears off their balance sheet, and hence the swap is no longer needed or wanted for its intended purpose of removing interest rate risk. This is often a cost, but can actually be a gain for the bank.


The ERC isn't allowed to be set at a higher level than the cost to the bank of breaking this swap. Paraphrasing this would need to go in any complaint you made. However, because the actual cost if they do break a swap depends on how interest rates have moved, which can't be known in advance, but for residential mortgage customers, they can't pass on actual breakage costs, it is accepted that ERCs are set at a 'best guess' at the start of what this cost could be.


So the actual cost to the bank of customers redeeming early can't be known in advance, but what is mathematically certain is that the closer to the fixed end date you get, the smaller the breakage cost, whatever has happened to rates in the meantime. In short, this is because the breakage cost is equal to the amount by which the swap rate has moved offside, multiplied by the time remaining on the swap.


For a few days' worth of early breakage, this would have a totally immaterial impact, and really would be ignored by even the tiniest of building societies. For this reason, I think you should pre-emptively contact them about it, and ask for mercy. The first person you speak to will say 'no, sorry, can't make exceptions', but if you persevere, by the time the complaints team asks for input from someone in Treasury / Assets and Liabilities Management, they will be told to just waive it is my guess.


Good luck!

TBeckett100

I'm in the same boat. The portable mortgage I have can't be ported to the property I'm buying. I have two months left on current Deal and whilst I can switch online to a new product (oddly cheaper than new mortgage rate for same term) they will still invoke 4k of ERC.

libf

chris01010 wrote: »

Unfortunately not. The 25/09 is a deadline as one of the mortgage offers in the chain expires then (it has already been extended).

Can you break the chain?