Early Redemption Penalty - Fee charged when switching mortgage lenders
Early redemption penalties are a mortgage penalty charge, usually associated with UK fixed rate mortgages, capped rate mortgages or cash-back mortgages, that comes about when customers attempt to leave their mortgage package early. The mortgage provider agrees to lend a finance package with benefits to the consumer but in return the consumer must keep the mortgage with them for a minimum length of time, usually indicated in the agreement. If the borrower wants to pay off their mortgage early or seeks to change UK mortgage lenders and re mortgage there may be charged a fee to do so, since the consumer is breaking the agreement. Not all UK mortgage lenders and their packages have early redemption penalty fees.
Early Redemption Penalty Example - UK Capped Rate Mortgage
UK capped rate mortgages are mortgages that have an interest rate that is set for anything from a few months to several years. This means that if the interest rate went up above the set limit the borrowers would not pay any more, however the interest rate can go down. The benefit of capped rate mortgages is the customer knows the top rate of interest that will be charged on the mortgage loan through out its duration which helps considerably with budgeting. With the capped rate UK mortgage the lender capping the interest rate is the lenders side of the deal. The borrowers side of the deal is to continue with their repayments for the agreed period. If the borrower wants to pay off their mortgage early or seeks to change UK mortgage lenders they will be charged a fee to do so. This fee is called an early redemption penalty, and is charged because the customer is breaking the agreement. Not all UK mortgage lenders and their mortgage packages have early redemption penalty fees and this could be used as a comparison between lenders.
Re-mortgaging and Redemption Penalties Information
When switching mortgage lenders and re mortgaging customers should weigh up the savings versus costs, these costs should include any early redemption penalties. Ideally, re-mortgaging should save money straightaway, but if there are costs involved, eg redemption penalties, it may take some time to recoup the layout. But annually there should be substantial savings making re-mortgaging property worth while.