What are Mortgage Early Repayment Charges?
A Mortgage Early Repayment Charge is a charge your Mortgage Lender imposes when you overpay by more than the permitted amount. Or, repay your Mortgage prior to the expiry of the introductory or fixed rate.
Why are Early Repayments Charged on a Mortgage?
Mortgage Lenders will usually offer you an initial Introductory or Fixed rate, over a set period of time usually for 2-5 years.
However, during that period Lenders base their profit on the fact that you will be with them throughout the entire initial term at least.
So if you leave within the introductory period they will charge a fee so they are still making money and also to deter you from leaving them early.
When are Early Repayment Charges imposed?
When you make over payments which exceed the amount you are permitted to overpay.
Most Mortgage Lenders will allow you to overpay on your Mortgage by up to 10% of the outstanding or the original balance each year.
For example, if your Mortgage outstanding is £100,000, you will be able to overpay at least £10,000 each year.
When you over pay more than the permitted amount, a charge is imposed by the Lender on any amount over this.
How much will my Early Repayment Charge be?
This will usually be dependent on how long into the introductory/fixed rate you are. And how long your introductory/fixed rate is.
Generally the longer your fixed rate is for example, the more you will have to pay in the early years if you wish to repay this.
To give you an idea of how much your Early Repayment Charge will be.
Generally, the early repayment charge will be 1% of the outstanding Mortgage balance for each year of your introductory/fixed rate remaining.
Although this will differ between Lenders.
£100,000 Mortgage. 2 years into a 5 year fixed rate = 3% early repayment charge (£3,000).
Porting your Mortgage to avoid Early Repayment Charges
The most common reason people want to repay their Mortgage early is due to them wanting to move.
In this instance, if you want to move but your Early Repayment Charge is preventing you from doing so.
There will usually be an option to “port” your Mortgage. This means you get to take your existing Mortgage with you to the new property.
By doing this, because you are sticking with the Mortgage and the Lender, you will not incur Early Repayment Charges.
Remortgaging when still within Early Repayment Charge period
Other common reasons people want to repay their Mortgage early, is due to the interest rate they are currently on being more expensive than that available in the market.
In this instance, there is little you can do unless you are within 6 months of your introductory rate maturing. Or if it works out cheaper to repay the Mortgage early and move onto the cheaper rate.
If you are less than 6 months away, you are able to lock in a cheaper rate now and set a completion date for when your existing rate finishes.
As above, in some cases, it may work out cheaper to pay the Early Repayment Charge and change Mortgages.
Speak to a Mortgage Advisor if you feel you are on a high rate and they will be able to check the viability of this option for you.
Can I get a Mortgage with no Early Repayment Charges
Yes, there are some Mortgages with no Early Repayment Charges.
Some Tracker rates – rates which usually track the Bank of England base – and most Variable rate Mortgages will not charge an early repayment.
There is also one Lender, who offers some Fixed Rate Mortgages which permit unlimited over payments. Meaning no Early Repayment Charges are imposed if you were to repay your Mortgage.
These are beneficial to those who feel they may want to move in the near term or those whose circumstances may change in the near term.
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