Who’s afraid of Early Repayment Charges?

Who’s afraid of Early Repayment Charges?

You could save thousands EVEN IF you leave your current mortgage before the Early Repayment Charge expires.

It’s a familiar scenario – the annual mortgage statement lands on the mat, you tear it open to see that you still have years and years to go before you can switch providers without penalty. The Early Repayment Charge (ERC) could be thousands of pounds, and the statement is “filed” for another year, thinking that there is NO WAY you can get a better deal with that penalty hanging over your head. Right? Well, maybe, but not necessarily…..

The following case study may surprise you –

Mrs X gave us a call. Six years ago, she took a long-term interest only mortgage and was now locked into a 15 year fixed rate of 5.49%! Since then, mortgage rates have plummeted, and she was keen to see if she could take advantage of this. She wanted her ex-husband off the mortgage, earned much of her income from bonuses and wanted to switch to a repayment mortgage…oh and she had already been turned away by her current lender! (quite the demanding customer, but we’re not afraid of a challenge here at Your Next Mortgage!). There was more than a bit of a problem though – the ERCs on her current mortgage would cost her several thousands of pounds if she switched early.

After a long chat, Alan went to work to see if he could help and after extensive research, found a perfect alternative – a 5 year fixed-rate repayment mortgage at a much lower rate! Not only would Mrs X be paying the same monthly repayments as her previous interest only mortgage, with the new deal, even after taking into account the ERCs, she would SAVE £22,000 over 5 years. [This illustration is specific to Mrs X’s circumstances alone, and not all cases will have the same outcome, as everyone’s situation will be unique and this will be taken into consideration when you seek advice. Mrs X’s saving is not necessarily a representative amount and is used for illustrative purposes only.]

For Mrs X, the move to another provider was a clear no-brainer. So the take away here is not to make any assumptions…it costs nothing to find out if you’re better off switching or better off staying put. Either way, by finding out, you’ll be able to sleep just that little bit more soundly.

Your property may be repossessed if you do not keep up repayments on your mortgage. You can choose how we are paid: pay a fee, usually 0.75% of the loan amount or we can accept commission from the lender.

Written by John Thompson

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