Avoiding Early Repayment Charge

eldy123

Hi,8


I am 3 years into a 10 year fixed rate mortgage at 3.89% with Barclays/Woolwich


I very much would like to switch to a 5 year fixed rate at 1.99% with HSBC or even stay with Barclays whose 5 year fixed is a little more but I understand either way I would have to pay Barclays a 6% Early Repayment Charge if I transfer mortgage.


Has anyone ever managed to get the ERP reduced or even avoided it by transferring to another mortgage with the same provider?


If I told Barclays that HSBC has offered me a better mortgage would this allow them to switch to another mortgage with them but avoiding the ERC ?

David_White

What's the incentive for Barclays?

MortgageMamma

Have you done the maths i,e, worked out the savings over the term deduct costs for the remortgage inclusive of ERCs?

minimike2

The answer to your question is the ERC would not be waived.

cahillg81

Why did you take out a 10 year fixed in the first place? Surely you realised the implications of being stuck with the same lender for 10 years. And why would you go from a 10 to a 5?


What happens if in 2 years time we are in negative interest would you want to switch again?

enjoyyourshoes

The only way a bank waives ERC when its in their interest.

Northern Rock came out of residential mortgages a few years back and offer us zero ERC with 3 years left on 5 year fixed, it suited them, but conveniently it suited us too.

I guess thats the risk of fixed term, you can not cheaply move within the term, but you calculate the risk before you sign dotted line.

Could ask them , but you probably know the answer.

When doing calculations, do like for like comparison (value, term and add in any costs, length of the 'deal' )and see which gives you less as outstanding balance at that point in time.

frazell

This is the reason why I personally only ever opt for 2-3year mortgage products as it gives flexibility to move to other deals in a relatively short period.

Sure, I understand why people opt for longer periods, if I was 55 and wanted to know what I'm paying up to 65 then I'd consider a 10 year fix perhaps.

I think in the current market its even more beneficial to have this flexibility at hand, notwithstanding you are paying a product fee every 2-3 years. I think I'd rather pay a remortgage fee than consider paying a much higher ERC to escape.

I know these comment aren't much help to you right now, but perhaps you might give more thought to your product term next remortgage time.

Just food for thought and you might have had a change in circumstance that is not evident from your post.

eldy123

Thanks for the replies.


Yes in a short space of time after taking out the 10yr mortgage our finances have improved considerably and we are now in position to pay off the mortgage in around 5 years if we switch taking into account the maximum overpayments allowed without another ERC taking place


We have gone though various mortgage calculator spreadsheets and we would be left with considerably less of the capital to pay off in 5 years if we switch to a much lower interest rate. With the interest element there is a little difference if we take the ERC into account.


The drop from 3.89% to 1.99% (or even less if we wait a little longer) is significant for us to be willing to pay the ERC.


Any way of avoiding the ERC would be a 9k bonus for us. If it has to be paid then its no issue as we are still better off moving.


Why would it not be in Barclays interest to negotiate to stop us moving to a competitor bank? If they have no mechanism internally for dealing with issues like this then that's fine, i'm hoping a broker who knows Barclays can clarify that for me.

frazell

You have to remember, its a win/win for Barclays.

You pay the ERC and leave - they win

You stay and continue to pay 3.89% - they win

They won't care if you want to move to another provider, you are one in millions of customers to them.

Its really the whole purpose of the ERC in the first place... its a penalty to stop you moving, or at least penalising you if you do.

At the end of the day you took the 10 year product to guarantee your payments and that's the benefit of it. The risk being, interest rates dropping, which is now the reality of the situation.

Thrugelmir

eldy123 wrote: »

Why would it not be in Barclays interest to negotiate to stop us moving to a competitor bank?

Be pointless setting ERC's in the first place. If they could simply be negotiated away. Though there are actually business reasons behind the ERC's i.e. the underlying funding of fixed rate mortgages. Not simply imposed as a penalty on borrowers.

ACG

Its rarely financially better to pay the ERCs.
Could you not put your overpayments in some sort of bond/ISA/SAvigns account and try to get a decent rate of interest?