Rules on ERC's...?

babylou250207

Could anybody help with a quick question about early repayment charges on mortgages.  I'm in the throes of selling a property that I have a BTL mortgage on and its on a fixed rate until August 2025.  There will be a penalty of 2% of the outstanding balance if I repay it before the end of August but I don't have an option of course if the property is being sold. But my mortgage also allows me to reduce the mortgage by 10% each year without penalty so would that rule still apply...?   So as I have a balance of c£230K left on the mortgage do you think I will be charged 2% on the full £230K or 2% on £207K (£230K less 10%)...?  Any help would be much appreciated.

ACG

You need to check with the lender if you would only in essence pay it on 90% of the balance. I think most do, but I also think there are some who do not. 

Hoenir

Normally the ERC will be calculated on the balance outstanding at the settlement date. 

There maybe accrued interest to take into account. The 2% ERC will be levied on this as well. 

housebuyer143

If I were you I would try to push out completion as that's a lot of money to be lost. Are you near completion?

saajan_12

Ultimately only your lender's T&Cs can confirm. 
But I'd expect they calculate the overpayment in excess of the 10%. 

As if you overpaid 11% in a year, you would usually just pay the ERC on the excess 1%. So I don't see why there would be a different rule if its an excess 90%. 

BikingBud

Early throes or final throes?

Vacant BTL or still occupied?

Scope to soak up some time and be honest with potential purchaser, eg want to ensure we have vacant possession there expect to be available for exchange/completion Aug/Sep?

What do you mortgage terms say? I have, on a 5 year fixed, indicators of cost at 3yr, 4yr, 5yr anniversary of purchase, the product end date is after 5th year. The only way to find out is to ask your lender for a settlement figure but unlikely to be correct this far out.

The charge might be between £4k and £4.6k by my reckoning but what does it save you? If you pay off earlier, some interest, potentially CT, other bills, some tax?

You put the saved mortgage payments to work, invest in pension, higher sal sac from employer etc make the money work for the short period you might get some back.

Hoenir

housebuyer143 said:

If I were you I would try to push out completion as that's a lot of money to be lost. Are you near completion?

If the property is empty then it's costing a lot more than just the mortgage interest. 

amnblog

The answer to your question depends on the Lender.

With one major Lender for example, if you use your 10% allowance to make an overpayment , they will charge an ERC against that overpayment if you then settle the full mortgage within 6 months of the overpayment.

BikingBud

babylou250207 said:

Could anybody help with a quick question about early repayment charges on mortgages.  I'm in the throes of selling a property that I have a BTL mortgage on and it's on a fixed rate until August 2025.  There will be a penalty of 2% of the outstanding balance if I repay it before the end of August but I don't have an option of course if the property is being sold. But my mortgage also allows me to reduce the mortgage by 10% each year without penalty so would that rule still apply...?   So as I have a balance of c£230K left on the mortgage do you think I will be charged 2% on the full £230K or 2% on £207K (£230K less 10%)...?  Any help would be much appreciated.

Fire and Forget!