Unfair mortgage early repayment charges

dunstonh

What I don't understand is, if the ERC is supposed to reflect the real cost/loss incurred by the lender, then how is it the same percentage throughout the life time of the discount when clearly the loss would be greater if repayment was made in Year 1 than if made in year 5. And, how come some lenders have a sliding scale of charges (which seems logical) and others don't.

The rate they use is calculated by actuaries. They factor in the typical repayments made on capital and repayment mortgages. This again reflects that fact that the pricing is done on bulk and not individual basis.

Deals are financed different ways. Costs are factored in different ways.

Argiebargie

My mortgage is repayment only.

Argiebargie

Sorry, I meant interest only.

glosoli

It really doesn't matter, if you redeem the mortgage within the concessionary period you will be subject to the early repayment charge. If you want to avoid it then wait 11 months until it reverts onto the Standard Variable Rate, it's literally the only way you can avoid it unless you port the rate across to the new house.

RADDERS

What you need to remember is that when you took out the mortgage the lender will have taken out a "swap" to hedge the interest rate.
What this means is that the lender will also be tied into this term with a swap provider and will be unable to get out of it unless a payment is also paid. When lenders price fixed rate mortgages they are priced over the full term of the fix.