Adding Early Repayment Charge to New Mortgage

binky123

I have been doing some calculations and worked out that if I remortgaged now, despite nearly £4k early repayment charge being added to a new mortgage, the new lower interest rates on offer means I could save £120 a month on repayments and still owe the same amount of capital back after 2 years (which is when the current fixed rate ends). From this point of view it seems a no brainer.

However I have spoken with my lender, HSBC, and they told me the ERC cannot be added on to a new mortgage. When I enquired if I could instead remortgage with additional borrowing (i.e. to pay back my own savings for the ERC), they told me the minimum additional borrowing would be £10k and in any case you need to have a better reason for additional borrowing than ERCs.

I'm slightly deflated about this because I would love to be able to save £120 a month, and guides I've read online, including on here, suggest that adding ERC to a new mortgage is fairly standard stuff.

I was wondering if anyone else has done anything similar before, or if anyone knows which lenders do allow the ERC to be added to a new mortgage?

As an aside I was also wondering why HSBC care so much what additional borrowing would be used for, when the amount involved would still mean lower monthly repayments and well within the 70% LTV for the new mortgage - would a new, separate lender worry about whether my new mortgage was for more than the amount repaid on the old one, or would they just measure it as a new mortgage against the LTV criteria?

Any advice/experience appreciated - just trying to be a Moneysaver here! :money:

kingstreet

Changing products with your existing lender is not a remortgage.

Many lenders don't appreciate product changes mid-term and Nationwide, for example, will only allow you to do this if you pay the penalties from your own resources. They will not lend more to enable you to do this. It sounds like HSBC works the same way. No surprise there.

If you do remortgage, that means you take a new mortgage with a new lender to replace the old one, the new lender does not care about penalties being added to the loan as it is simply lending the amount needed to redeem the existing mortgage, as long as affordability and loan to value are fine.

I was wondering if anyone else has done anything similar before, or if anyone knows which lenders do allow the ERC to be added to a new mortgage?

Any, where it's a remortgage. None where it's a customer retention product from existing lender where the penalty will require additional borrowing.

binky123

kingstreet wrote: »

Changing products with your existing lender is not a remortgage.

Many lenders don't appreciate product changes mid-term and Nationwide, for example, will only allow you to do this if you pay the penalties from your own resources. They will not lend more to enable you to do this. It sounds like HSBC works the same way. No surprise there.

If you do remortgage, that means you take a new mortgage with a new lender to replace the old one, the new lender does not care about penalties being added to the loan as it is simply lending the amount needed to redeem the existing mortgage, as long as affordability and loan to value are fine.


Any, where it's a remortgage. None where it's a customer retention product from existing lender where the penalty will require additional borrowing.

Thanks, I can see why from HSBC's point of view they would not like me to save money. :rotfl:

Just one thing though, with regards to going to a new lender - you say they don't care if I add the ERC on, but do they even consider that the amount I am taking out is, say, £4k more than the amount I am paying off on the old one? Would they not go into the reason for additional borrowing, or even notice?

kingstreet

The amount required to redeem existing mortgage includes the early repayment penalty, so that's what you enter.

Even if the two were separately itemised the new lender wouldn't give a toss as long as the case fits affordability and loan to value as I said.

Your issue is because what you are doing is not a remortgage.

getmore4less

binky123 wrote: »

I have been doing some calculations and worked out that if I remortgaged now, despite nearly £4k early repayment charge being added to a new mortgage, the new lower interest rates on offer means I could save £120 a month on repayments and still owe the same amount of capital back after 2 years (which is when the current fixed rate ends). From this point of view it seems a no brainer.

Are you sure you have that calculation correct.

£120pm lower payment, recovering £4k and still owe the same after 2 years seems unlikely.

How much do you owe, current payment, old and new interest rates?


what happened to your base rate + 1.24% did you not port that in 2012?

ripon12

Just done a product transfer with them had to pay ERC upfront as well
Mine was only £318 but new deal has £250 cash back
Had great service though and. I applied for 2.54 and they gave me a newer lower rate of 2.48 5 year fix so I'm well pleased
I do think most lenders will not allow you to add ERC onto new deal

binky123

getmore4less wrote: »

Are you sure you have that calculation correct.

£120pm lower payment, recovering £4k and still owe the same after 2 years seems unlikely.

How much do you owe, current payment, old and new interest rates?


what happened to your base rate + 1.24% did you not port that in 2012?

The calculations are right. It's not quite as clear cut as I mentioned though. I can either overpay on the new rate with the £120 a month saved (ie. pay per month the same as I do now) and be a couple of grand better off in 2 years, or pocket the £120 a month and only be slightly worse off after 2 years in terms of remaining balance (but richer in savings or life enjoyment!). Either way it makes me better off financially and after a short period of time. I'm on 3.99% and I can now get 2.54%.

Mentioning my old base rate tracker is pretty cruel! To cut a long story short, I pulled out of the purchase and by the time we found another, it was over 6 months since selling so we could no longer port the rate. Having had such good luck on the old rate I thought back in 2012 that rates couldn't stay so low much longer and at the time, 3.99% for my ltv was good. I played it safe and it's backfired.

binky123

kingstreet wrote: »

The amount required to redeem existing mortgage includes the early repayment penalty, so that's what you enter.

Even if the two were separately itemised the new lender wouldn't give a toss as long as the case fits affordability and loan to value as I said.

Your issue is because what you are doing is not a remortgage.

Thanks, but I'm still not clear. Why isn't it a remortgage? I'm not moving and I'm not a FTB. It's for my current home.

I started an online form with a new lender, but the box for the amount I want to borrow is called "outstanding mortgage balance". How can I just add £4k to that and not be lying? It doesn't mention about including fees or charges for redemption.

binky123

ripon12 wrote: »

Just done a product transfer with them had to pay ERC upfront as well
Mine was only £318 but new deal has £250 cash back
Had great service though and. I applied for 2.54 and they gave me a newer lower rate of 2.48 5 year fix so I'm well pleased
I do think most lenders will not allow you to add ERC onto new deal

Was that HSBC too? I've found firstdirect offer 2.44% for the equivalent of HSBC's 2.54% product, but the fees are higher. I'm not sure how close the two are connected... and if that would affect treatment of the ERC. Firstdirect also seem tighter with how much they will lend.

ripon12

binky123 wrote: »

Was that HSBC too? I've found firstdirect offer 2.44% for the equivalent of HSBC's 2.54% product, but the fees are higher. I'm not sure how close the two are connected... and if that would affect treatment of the ERC. Firstdirect also seem tighter with how much they will lend.

Yes hsbc have reduced it now from 2.54 to 2.48 also no fees and £250 cash back it is the 5yr fix adv remortgage special

Thrugelmir

binky123 wrote: »

Why isn't it a remortgage? I'm not moving and I'm not a FTB. It's for my current home.

The mortgage is the legal charge placed on your property to secure the debt. The debt owed is a loan. All you are doing is fixing the interest paid on the loan for a period of time by means of a product.