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  • FIRST POST
    • Goldust
    • By Goldust 9th Feb 18, 1:59 PM
    • 408Posts
    • 100Thanks
    Goldust
    Reducing early repayment charge
    • #1
    • 9th Feb 18, 1:59 PM
    Reducing early repayment charge 9th Feb 18 at 1:59 PM
    Hi,

    I've read a few other threads on these but they're quite old now. General consensus is it's what I agreed to and I accept that but I'll explain my situation to see if there's anything I can do to reduce the overall impact.

    I signed up to a 5 year fix with Post Office mortgages in early 2014 so the rate expires in around a year from now. I thought (wrongly) that the 5% ERC reduced by 1% each year but it doesn't. Again, my fault - I did most of the work myself and I didn't go back to check this so nothing I can do there.

    I am looking at moving overseas and I don't want the hassle of maintaining or renting my house here so would prefer to sell.

    As I'm now in the final year, is there anything I can do? I thought the ERCs were supposed to be fair compensation for the loss the mortgage provider makes on me settling early. But I don't understand how that value can be the same pretty much in the final year as it is in the first year. Or am I wasting my time? I don't really know how to approach the situation or just suck it up and either lose 5% or delay my plans to move for a whole year if I can....

    I will ring them up and see but wanted to arm myself with anything that might help before I do so.

    My interest rate if it helps is 3.2%. So 5% penalty now would be more than the interest I would pay over the remaining fixed rate term.
Page 1
    • Thrugelmir
    • By Thrugelmir 9th Feb 18, 2:18 PM
    • 58,225 Posts
    • 51,585 Thanks
    Thrugelmir
    • #2
    • 9th Feb 18, 2:18 PM
    • #2
    • 9th Feb 18, 2:18 PM
    I thought the ERCs were supposed to be fair compensation for the loss the mortgage provider makes on me settling early.
    Originally posted by Goldust
    No need to be fair. Lenders will set the penalty at a level to discourage people from reedeming early. As costs them money to do so.

    You'd complain soon enough if the lender wished to break the contract by increasing interest rates.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • kingstreet
    • By kingstreet 9th Feb 18, 2:47 PM
    • 33,194 Posts
    • 17,929 Thanks
    kingstreet
    • #3
    • 9th Feb 18, 2:47 PM
    • #3
    • 9th Feb 18, 2:47 PM
    As I'm now in the final year, is there anything I can do? I thought the ERCs were supposed to be fair compensation for the loss the mortgage provider makes on me settling early
    Originally posted by Goldust
    No. It is to compensate the market counterparty which agreed to those terms to provide the rate swap to provide the fixed rate funds in the first place.

    It is a simply x until DD/MM/YYYY and there is no grey area.

    A tapering ERC 5/4/3/2/1 for example would have resulted in a higher rate being offered.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • pjcox2005
    • By pjcox2005 9th Feb 18, 2:55 PM
    • 514 Posts
    • 572 Thanks
    pjcox2005
    • #4
    • 9th Feb 18, 2:55 PM
    • #4
    • 9th Feb 18, 2:55 PM
    Potential you could look at what level of overpayment you can make to reduce the penalty should you have the funds.
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