How to Avoid Mortgage Redemption Fees When Selling
Almost all fixed and discount interest mortgage deals will have an early redemption penalty attached to them. If you want to get out of the deal before the agreed end date, you will be required to pay this fee. This is the case if you want to move to a cheaper lender or if you are in a position to clear the rest of your mortgage balance entirely. The fees can be anything from a few hundred to a few thousand pounds. There are two types of penalty fees to watch out for, which are:
Penalties Lasting for the Fixed or Discount Period:
It’s unlikely that you will find a penalty-free fixed or discount deal. On the best deals, this will usually last for the same time of the special deal, which could be anything from a few months to several years or more. After this time has passed, you will be able to pay off the mortgage without having to pay the penalty. The best way to avoid paying this fee is to stick with it until the end of the fixed or discount period. If you think that you might want to pay your mortgage off, move to a cheaper deal or sell your home before the fixed or discount period ends, or consider taking out a shorter deal when getting your mortgage.
Extended Redemption Policies:
Some mortgages will come with an extended tie-in or an extended redemption policy. This can last for several years after the fixed or discount deal has ended, which will tie you into paying the standard variable rate to the lender. Getting stuck in a deal such as this could mean that you end up paying much more over the tie-in period than you would have done with taking out a deal without an extended tie-in and a higher interest rate initially. Always check if the mortgage that you are going to apply for comes with an extended tie-in and give it some serious consideration before signing up. Mortgages like this are not often worth signing up for, despite the great initial fixed or discount offers available.
Why Might I Pay an Early Repayment Charge if Selling House?
There are several potential reasons why you might end up paying an early redemption charge. Some of the most common reasons include:
- Coming out of a deal: If you want to switch your current mortgage provider and apply for a different product, even if you’re staying with the same lender, this will typically incur a fee.
- Making a large repayment: Most lenders will allow you to repay some of your mortgage capital per year in the form of overpayments. However, if you want to pay a significant lump sum towards your mortgage, a fee might be payable. In this case, it’s best to wait until the fixed or discount interest period has ended before making the lump sum payment.
- Moving house: If you want to move home and take a new mortgage out with a new lender or the same lender and are part-way through a fixed or discounted deal, you will usually be required to pay an ERC.
How to Avoid Early Repayment Charge If Selling House Just After Buying It:
If you are buying a house that you plan to sell in the very near future, there are several things that you can do to avoid paying an early repayment charge. These include:
- No ERC deals: Some lenders will offer flexible products that do not include any early repayment charges. While you are unlikely to get access to some discounted or fixed interest deals if you want to avoid paying an ERC, this might be the most cost-effective option for you if you are planning to sell your home very quickly.
- Shorter fixed or discount interest term: If you are buying a house and know that you will want to sell it within a certain amount of time, choosing a shorter fixed or discount interest period can help you make sure that you are not selling during the time that this period is still active on your mortgage.
- Port your mortgage: If you are selling your house to move into a different home and want to borrow the same amount or more, you may be able to port your mortgage. This means that the same interest rate terms will apply to the mortgage on your new property. However, you will still need to go through the mortgage underwriting process with your new lender and they’ll still need to take your current circumstances into account before you will be approved for your new mortgage.
- Pay up to the ‘charge free’ limit: If you want to pay more towards your mortgage while avoiding the ERC, you can pay up to the ‘charge free’ limit. Most lenders will allow you to repay a certain percentage of the mortgage each year without incurring the ERC. Even if you are on a fixed or discount interest deal, you will usually be allowed to overpay up to 10% of your mortgage each year without being liable for any penalty fees.
- Wait until the charge period ends: Whether you are looking to sell your home, repay a significant amount of your mortgage, or change to a different mortgage provider, often the best way to avoid paying an ERC is to simply hold off until the charge period ends. The good news is that all ERCs will have an end date, which is either when the fixed rate ends or after a certain period from the date that your mortgage was completed. Once you are past this date, you should be free to make overpayments, sell your home and get a new mortgage, or remortgage your property with a different supplier without the need to pay a penalty fee.
Fixed or discount interest deals can be ideal for saving money on your mortgage. However, it’s important to be aware of the ERC and how it could impact you if you want to remortgage, make a large overpayment or sell your home.