Early repayment redemption fee - any avoidance/reduction tricks out there?

grocerjack

Evening folks. We might be in a position to pay our mortgage off early soon, so we asked today what was involved, and with £200k left to pay, we have been told there's a redemption fee of £10k - which is about £9k over our budget. Paying this off would save us circa £1600pm so there is a substantial saving to be made, plus it gives us the ownership of a house worth circa £550k.

Is there a way around this redemption fee? Maybe via taking the mortgage elsewhere? Or remortgaging for a substantially lower sum with the same company?

It seems such a rip off to me, so any suggestions are most welcome.

Thanks Jack

Thrugelmir

Overpay the mortgage within the permissable limits. Chip away until the product term ends and you are free of the ERC.

I doubt that you will be saving £1600pm by redeeming the mortgage. All you will be saving is the monthly interest charged which is going to be a fraction of this figure.

dimbo61

Why not start by paying 10% off.
Check you mortgage deal but most allow 10% overpayment each year.
How long has the deal left to run.
What rate are you paying on the mortgage ?
What is the best savings rate you can get ?
Do you have any other expensive debts ?
How come you now have a spare £200,000 ?
Could you use this to Invest in your pension or stocks and shares, or a BTL property ?

middleclassbutpoor

What are the overpayment rules for your mortgage?

Most allow you to pay 10% penalty free but some differ from this. You should look to use this to pay down your loan.

There may be the option to pay 20% down if you pay at the end of one year/start of the next. but it depends on what periods your overpayment work on.

There is never any other option but to either pay but for me, if you could repay 20% (£40k) then your early repayment would be based on £160k rather than £200k. Which should take your ERC from 10k to 8k if this is at 5%.

strawb_shortcake

One of your previous posts, it seems you entered a 5 year year deal back in 2016 (your ERC seems quite high as you are close to the end?).
Pay 10% this year and next then redeem at the end of your term in 18 months or so.

[Deleted User]

annabanana82 wrote: »

One of your previous posts, it seems you entered a 5 year year deal back in 2016 (your ERC seems quite high as you are close to the end?).
Pay 10% this year and next then redeem at the end of your term in 18 months or so.

Quite common for lenders to have a flat rate of 5% across the whole 5 year period. Quite a few prime lenders do this

strawb_shortcake

Deleted_User wrote: »

Quite common for lenders to have a flat rate of 5% across the whole 5 year period. Quite a few prime lenders do this

I had no idea, one to look out for at our next remortgage

getmore4less

grocerjack wrote: »

Evening folks. We might be in a position to pay our mortgage off early soon, so we asked today what was involved, and with £200k left to pay, we have been told there's a redemption fee of £10k - which is about £9k over our budget. Paying this off would save us circa £1600pm so there is a substantial saving to be made, plus it gives us the ownership of a house worth circa £550k.

Is there a way around this redemption fee? Maybe via taking the mortgage elsewhere? Or remortgaging for a substantially lower sum with the same company?

It seems such a rip off to me, so any suggestions are most welcome.

Thanks Jack

The saving is only the interest, the first (£200,000/£1,600) 125(10 years 5 months) payments are just resorting your capital

What is your rate and term?

With a 5% ERC you may be on a longish fix so £200k with £1,600pm here are your current interest savings for full term(which is not what you would pay)

rate...term...interest
1.5%..137m £17,607
2.0%..141m £24,457
2.5%..145m £31,923

but your ERC will go down well before those terms.

key information needed

Rate,amount, full term, payment, ERC % and any date where it changes to a lower amount, and date down to Zero(end of fixed term)

If we go with 2% and 11y 9m full term
break even on the ERC will be close to 3 years with ERC free over payments.

How much is left on your fixed term?

grocerjack

Thrugelmir wrote: »

Overpay the mortgage within the permissable limits. Chip away until the product term ends and you are free of the ERC.

I doubt that you will be saving £1600pm by redeeming the mortgage. All you will be saving is the monthly interest charged which is going to be a fraction of this figure.

Thank you, however we pay £1600pm, of which £350 is interest and once redeemed that money is ours, and I'm still working so it's a nice position to be in, especially with the continuing threat of redundancy my company has.

grocerjack

dimbo61 wrote: »

Why not start by paying 10% off.
Check you mortgage deal but most allow 10% overpayment each year.
How long has the deal left to run.
What rate are you paying on the mortgage ?
What is the best savings rate you can get ?
Do you have any other expensive debts ?
How come you now have a spare £200,000 ?
Could you use this to Invest in your pension or stocks and shares, or a BTL property ?

12 years to run, until I'm 70
1.9%
Don't know, but some of the money (the £1600) would go into an AVC for my DC pension, some into a cash ISA and some into a long term ISA I think.
A couple of small loans and a credit card, nothing dramatic.
It would be from a CETV, whereby the multiple is very generous, so the 25% would clear this mortgage down.
Yes, that is part of the plan.

Thanks, all this advice is much appreciated.

grocerjack

middleclassbutpoor wrote: »

What are the overpayment rules for your mortgage?

Most allow you to pay 10% penalty free but some differ from this. You should look to use this to pay down your loan.

There may be the option to pay 20% down if you pay at the end of one year/start of the next. but it depends on what periods your overpayment work on.

There is never any other option but to either pay but for me, if you could repay 20% (£40k) then your early repayment would be based on £160k rather than £200k. Which should take your ERC from 10k to 8k if this is at 5%.

Thanks for this, we will look into this.