Mortgage early repayment fees

cjrmail2k

Hi All,

I am currently selling my property and my fixed rate mortgage deal ends on November 30th. If I end the mortgage before this date (even 1 day before this date) I end up being liable for the early repayment fee of 1% of the outstanding amount. This is roughly 6 times the interest that Natwest would have made in the last month of my mortgage (assuming we would complete end October). I understand the need for the bank to protect their projected interest earnings over the period of the fixed interest rate but I don't find it fair that the amount owing in the event of early repayment should exceed the actual interest that would have been accrued in the final throes of the term. Am I alone in thinking this is unfair? Surely the amount owing should decrease monthly as you approach the end of term?

I assume this is not limited to Natwest but it seems to me that banks are gouging their customers for more than they should.

I will speak with the solicitor and try to align completion date with the end of term but it means that I will be paying a mortgage and rent as we have moved to rented and it also delays the buyers purchase.

Many thanks!
Chris

BoGoF

A bit of forward planning would avoid the ERC, but far easier to blame the big bad banks eh.

You are the one that has moved into rented during the fixed term.

[Deleted User]

If you dont find it fair why did you sign the contract and agree to the terms? Presumably you only dont find it fair because you are being disadvantaged and you were happy to take the money from them in the first place?

If you are doing a remortgage then the solicitors will align the dates. If you are moving house then try to align them or factor in the costs.

A lot of lenders (cant remember if natwest do) will waive the fees if taking a new mortgage with them. Santander do it in last 180 days of the penalties as long as new mortgage is with them. Im not sure if this would be allowed under the test of fairness that you are applying?
I am assuming you cheked with Natwest if they allow this before you threw your toys out the pram?

cjrmail2k

Thanks for your helpful reply. My house has been on the market for some time and no amount of forward planning can help when trying to find a buyer and synchronize the sale, if you have nothing relevant to add then perhaps don't comment???

cjrmail2k

Hi JMA, well I am glad I signed up to this wonderful forum. Such a friendly bunch you are! Yes obviously I have checked with Natwest before 'trowing my toys out the pram'.

I am asking if people think this is deemed fair. Have you ever got a bank to change their mortgage terms specifically for you? Natwest also offer a early remortgage option, I could do it now with no charge. But no diminishing ERC as you approach end of term.

haras_nosirrah

I am afraid you won't get them to change the erc period
You can either delay till end of nov or take the hit on the charge.

As the house was on the market for some time the charge must have been factored in as if you had sold it in e.g. march you would have been a long way away from being at the end of the erc.

Explain to your buyer that you have a mortgage tie in until the end of nov so happy to exchange now with a scheduled completion 1st dec. If they won't accept that you will just need to take it on the chin as you would have done presumably if you had sold immediately on listing

[Deleted User]

What kind of helpful reply do you expect?

A lot of lenders waive them under many circumstances. Nationwide waive them as soon as your monthly payment has been made in the last month for example.

Essentially you are complaining about contract terms after you happily agreed to the contract.

Best you can do is ask your buyers to delay the completion until after your ERC's have expired or split rhe cost if you want to complete earlier.

No lender will bend policy for goodwill with ERC's

BoGoF

cjrmail2k wrote: »

Thanks for your helpful reply. My house has been on the market for some time and no amount of forward planning can help when trying to find a buyer and synchronize the sale, if you have nothing relevant to add then perhaps don't comment???

It was very relevant. Don't want to pay the ERC? Then don't sell during the fixed term.

That is the harsh reality.

cjrmail2k

haras_nosirrah wrote: »

I am afraid you won't get them to change the erc period
You can either delay till end of nov or take the hit on the charge.

As the house was on the market for some time the charge must have been factored in as if you had sold it in e.g. march you would have been a long way away from being at the end of the erc.

Explain to your buyer that you have a mortgage tie in until the end of nov so happy to exchange now with a scheduled completion 1st dec. If they won't accept that you will just need to take it on the chin as you would have done presumably if you had sold immediately on listing

Thanks, this is what we are going to aim towards as we still end up better off making the final 2 mortgage payments and building up a small bit more equity. We were aware of the ERC and it was factored in to the sale price but I thought the ERC was diminishing, it is, but only annually.

I have spoken to the solicitor and asked for them to aim for December 2nd completion date. If the buyer asks why then we can open up discussions on it. She is also in rented accommodation so reasonably agile.

I appreciate the time you took to reply and the advice. Thanks!

SonOf

I understand the need for the bank to protect their projected interest earnings over the period of the fixed interest rate but I don't find it fair that the amount owing in the event of early repayment should exceed the actual interest that would have been accrued in the final throes of the term.

It is clear from your comment that you do not know how mortgages are financed. So, you are not in a position to deem what is fair or unfair.

The bank suffers penalties if you repay the mortgage early. The money it has borrowed to lend to you has to be paid. Eith to the end of the term or if they can repay their creditors early, they will charge the bank a penalty too. The creditors will usually be a combination of fixed-term deposits and money markets.

I assume this is not limited to Natwest but it seems to me that banks are gouging their customers for more than they should.

So, what you really mean is that its unfair that you have to pay your costs and you want other customers of the bank to suffer your costs instead. It appears you are trying to gouge other customers.

My house has been on the market for some time and no amount of forward planning can help when trying to find a buyer and synchronize the sale,

If you believe you are going to sell the property in a period then you do not commit to a tie in deal that covers that period.

ERCs step down as the term goes on to reflect the reducing costs. They are considered fair and reasonable.

If you are buying another place then enquire about porting the mortgage.

kingstreet

cjrmail2k wrote: »

Hi All,

I am currently selling my property and my fixed rate mortgage deal ends on November 30th. If I end the mortgage before this date (even 1 day before this date) I end up being liable for the early repayment fee of 1% of the outstanding amount. This is roughly 6 times the interest that Natwest would have made in the last month of my mortgage (assuming we would complete end October). I understand the need for the bank to protect their projected interest earnings over the period of the fixed interest rate but I don't find it fair that the amount owing in the event of early repayment should exceed the actual interest that would have been accrued in the final throes of the term. Am I alone in thinking this is unfair? Surely the amount owing should decrease monthly as you approach the end of term?

I assume this is not limited to Natwest but it seems to me that banks are gouging their customers for more than they should.

I will speak with the solicitor and try to align completion date with the end of term but it means that I will be paying a mortgage and rent as we have moved to rented and it also delays the buyers purchase.

Many thanks!
Chris

The ERC compensates the market counterparty which supplied the rate swap to make your fixed rate possible.

NatWest has to compensate in full even if repayment takes place only the day before the ERC ends.

Pretty much what Sonof says, really...