Avoiding Early Repayment Charge

dimbo61

If you can afford too and have the money then overpay the 10% allowed each year.
After the first year overpay the 10% and then put any extra into regular savers/ISA,s
If you can on doing this you could clear the mortgage in a little over 7 years.

eldy123

ACG wrote: »

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?

I've done the calculations on the MSE calculators and for fine tuning also entered the details on an amortised Mortgage Payment spreadsheet and compared the results and i'm definitely better off moving away from my current mortgage.

Just need to see now if I can get out of paying the ERC. This is a money saving website so definitely worth pursuing. Or am I wasting my time?

mrginge

eldy123 wrote: »

I've done the calculations on the MSE calculators and for fine tuning also entered the details on an amortised Mortgage Payment spreadsheet and compared the results and i'm definitely better off moving away from my current mortgage.

Just need to see now if I can get out of paying the ERC. This is a money saving website so definitely worth pursuing. Or am I wasting my time?

The ERC has to be paid. If Barclays let you off then they have to pay it instead.

Why would they do this?

ACG

Its wasting your time.
When the bank buys money in, they buy it at a certain rate. If they do not charge you the ERC, it is possible that they would lose money. So your choice is pay the ERC and leave or dont and stay. Anything else is just a waste of yours and the banks time.

amnblog

Even the Ombudsman, who are normally more than keen to help the borrower don't see an angle.

Comment from a similar case by the Ombudsman

I’ve considered all the available evidence and arguments to decide what’s fair and
reasonable in the circumstances of this complaint.

Having done so, I too have concluded that 'the Lender' hasn’t done anything wrong. I’ll explain why.

The rules of mortgage regulation include provisions about ERCs. In summary, they say that an ERC must be able to be expressed as a cash value, and must be a reasonable preestimate of the costs resulting from early termination of the mortgage. But a firm can choosehow it calculates an ERC, and can calculate the same level of ERC across a group of mortgages of similar type, rather than for individual loans.

That means that 'the Lender' is entitled to set an ERC based not on the actual cost to it of Mr E and Ms A ending their own mortgage early, but on a reasonable pre-estimate of the costs of early termination of a group of mortgages of similar type.

So even if the ERC was more than the interest to be paid by Mr E and Ms A between now and the end of the ERC period, that wouldn’t mean the ERC was unfair – because it isn’t based on 'the Lender'’s losses if they ended their own loan now.

Lenders generally raise money to lend in mortgages on the wholesale money markets.

There’s a cost to that, and it’s generally fixed in advance. But the lender expects to receive a return to outweigh those costs in the form of interest on the loans it makes with the money.

If a loan ends early, it doesn’t get that interest, and so doesn’t make back the costs in raising the funds to lend.

It’s too complex and onerous for lenders to calculate individual losses as and when individual customers terminate early. And it isn’t possible to estimate, for any given individual, when or if they might do so. It’s much simpler to project how many customers, on average, are likely to terminate early and, on average, at what point they’re likely to do so, and to apportion that cost across the loans in the group.

For any individual borrower in the group the cost of terminating their loan early and the ERC paid if they do aren’t related. What’s important is that, for the group as a whole, the ERCs charged reflect the lender’s reasonable pre-estimate of its losses.

We asked 'the Lender' to explain how it calculated its ERCs. It gave us an explanation of the process it used and how the resulting ERC figures were arrived at. Our rules allow us to receive information in confidence in appropriate cases. I’m satisfied that the information 'the Lender' gave us is commercially sensitive and so this is such a case. So I won’t go into detail about
the information provided.

I will say, though, that I’ve considered it carefully and I’m satisfied that it matches the general outline I’ve given above and that the actual amounts are a reasonable pre-estimate.