Early Repayment Charges

Most, but not all, mortgages come with a an early repayment penalty, this a charge for leaving the lender before a certain date. The penalty can range from a several hundred pounds to a percentage of the mortgage, which could run into many thousands of pounds.

The redemption penalty period usually coincides with the period that an intrerest rate is fixed or a discount applies (these rae referred to as "no overhang") but sometimes they will apply for a longer period - try to avoid mortgages with an extended redemption penalty. Examples...

• 5 year fixed rate with no redemption penalty overhang. For 5 years there is an early repayment penalty of 3%. If you leave the lender within 5 years you will have to repay the mortgage plus 3% of the amount you borrowed (in some instances it might be the 3% of the balance outstanding)
• 2 year tracker deal with no redemption penalty overhang offering a rate of 1% above the Bank of England Rate, after 2 years the rate reverts to the lenders standard variable rate. For 2 years there is an early repayment penalty of 2% in the first year and 1% in the second year. If you leave the lender in the second year you pay a penalty of 1%
• 3 year stepped disocount with an overhanging redemption penalty in place for 5 years. In year 1 the rate is the same as Bank of England, in year 2 it is Bank of England plus 2%, in year 3 it is Bank of England plus 4%, after year 3 it is Bank of England plus 5%. The rate in year 1 looks fantastic but you will have to stay with the lender during year 4 and 5 when the rate is muich higher or pay a penalty to leave. Try to avoid delas like this.

In addition to early repayment penalties there are other charges that may have to be paid; deeds discharge fee (usually a fixed fee ranging between £50 and £300 depending on the lender). This would always be payable eventually, should you leave the lender after a few years or when the mortgage is finally repaid.