HOW TO AVOID EARLY REPAYMENT CHARGES
Before trying to avoid early repayment charges it is necessary to know why this charge exists. The reason is simple, a lender has a cost in borrowing the money they lend when they get a mortgage for you. For their profit and to recoup the initial cost, they are expecting you to pay that mortgage for a specific period of time, so if you pay them earlier, they won’t get that expected money back. As an SME owner, taking a business loan and then trying to pay it earlier, means that you are looking to take advantage of early payments which could have fees associated with them, so it is best to be aware of all the loan terms that you have signed up for.
- Opt for a ‘No ERC’ deal – one way to avoid this charge is to get a ‘No ERC’ mortgage prior to confirming the deal with your lender. With that, you can pay any time you wish with no repayment charge.
- Wait for ERC end date – If you’re unaware, all ERC have end dates. This is when the fixed rate ends or a set period from the beginning of your mortgage is completed. Waiting for your ERC end date is one way to pay a large partial payment or even a full payment without charge.
- Don’t exceed payment limit – pay according to what was agreed between you and the lender. You are usually entitled to pay no more than 10% of your annual mortgage even if you are on a discount or fixed-rate mortgage.
ERC usually happens when an individual opts to pay a big repayment amount and since lenders expect you to pay at a certain rate, exceeding that amount would lead you to ERC. Moreover, you could also be charged if you wish to end a mortgage deal earlier. In some cases, you cannot avoid early repayment fees but it is wiser to get a mortgage deal from someone with experience and knowledge so you’ll understand your situation better.