Mortgage Clinic: 'Can my bank impose these charges on me?'


Q. 'When divorce forced me to sell my home and downsize, my building society demanded that I pay a penalty. Admittedly, I had a three-year fixed-rate mortgage, and was only two years into it, but I took the new mortgage with the same company. In all, I've paid out £3,100. Surely that's unfair'.

HN, by e-mail

A. It seems unfair to charge you a penalty for changing to a smaller mortgage, especially as your new loan is with the same company.

However, redemption penalties are an inevitable feature of fixed-rate mortgages. When a bank or building society arranges a fixed-rate loan, it almost always funds that loan by borrowing the money at a fixed rate in the City. If you pay off your loan, or even part of the loan, early, the lender is left out of pocket, which is why they have charged you a penalty.

This is why it is so important to be clear about the rules that apply to a mortgage before you sign up for it; this is also why the FSA now has strict rules about the information a lender has to give you before you sign.

"Always read the small print of any mortgage deal before signing up," says Melanie Bien, director at mortgage brokers Savills Private Finance. "Pay attention to early-redemption penalties, as these are impossible to get out of, even if you have to change your mortgage through no fault of your own."

Check the terms of your mortgage carefully and also look at the advice you received from your lender.

It is worth asking why you were advised to redeem all of the original mortgage, if this is what you did, rather than redeeming part of it and then transferring the lower balance of it to the new property. Usually, lenders will only charge a redemption penalty on the amount you pay back, not the whole sum.

It might be that your mortgage was not that flexible, or there were other circumstances that stopped you "porting" your mortgage to a new property.

Anyone taking out a fixed- rate mortgage should check whether they can transfer the loan to another property, and also look for other features, such as the ability to make overpayments or redemption penalties that fall in each year of the mortgage: several lenders' fixed- rate deals do this.

Ms Bien also cautions that it is important not to fix your loan for longer than you are comfortable with.

"There are penalty-free mortgages, so if you have any doubts about what is likely to happen in the next few years, it might be worth opting for one of these and then switching to a fixed or discounted rate once you are more certain," she says.

Foxed by jargon? Confused by all the options? E-mail a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea