Early Repayment Charge On Mortgages and Remortgages
Many homeowners who come into a lot of money feel tempted to pay off their home mortgage loans earlier than the stipulated term; however, this is easier said than done. Home mortgage loans are usually associated with a number of terms and conditions in fine print, which prevent borrowers from paying them off too early. Borrowers who still insist on paying off their mortgages too early will have to pay a hefty price in the form of early repayment charges (ERC), which is also termed early redemption fee, financial penalty, early repayment penalty, and redemption charges in the mortgage market.
Although early repayment charges prevent borrowers from paying off their mortgage loans, borrowers might find that remortgaging their existing mortgage loans still allows them to save some money, in spite of the early repayment charges. However, this is something that borrowers will have to discuss with their mortgage advisors before taking a final decision.
Why Do Mortgage Lenders Impose ERS On Borrowers?
Since the mortgage market is intensely competitive, a number of mortgage lenders give away mortgage loans that will start generating profits for the lender only after several years. In order to make up for this loss, mortgage lenders imprison borrowers by imposing early repayment charges on them if they choose to pay off the loan too early.
The early repayment charges, however, vary from one mortgage lender to the other; for instance, some mortgage lenders might charge a few months interest as early repayment charges while others might require borrowers to return all benefits received in the form of reduced interest or cash backs.
Avoiding Early Repayment Charges
If you feel that you might one day be in the position to pay off your mortgage loan before its actual term comes to an end, choose a mortgage product that comes without early repayment charges. A number of mortgage lenders do allow borrowers to pay off their mortgage loans early without having to worry about early repayment charges.
Some mortgage deals require borrowers to stay with the loan as long as associated benefits in the form of discounts, fixed-rate interest, or capped rate interest last. If borrowers choose to pay off their mortgage and close the deal before the term of benefits run out, they will have to pay the early repayment charges.
Even if borrowers choose a mortgage deal without early repayment charges, they will have to bear other closing costs such as legal fees, sealing fees, and so on. However, the rates for mortgages with no early repayment charges are higher than those of mortgages with early repayment charges, making them ideal for borrowers who are planning to either pay off their mortgage loans earlier than usual or remortgage their existing loans to get lower rates, shorter terms, or other benefits.
Overhang
No overhang is yet another term homeowners ought to know. Mortgage loans with no overhang are those that allow borrowers to pay off their loans after the benefit period in the form of fixed rates or discounts comes to an end.