Money Insider: Ignore the mortgage ERC at your peril

Choosing the right mortgage can be a complex process, we all have different circumstances so unfortunately it will never be a case of one type of home loan fits all.

The majority of us who opt for a discounted or fixed-rate mortgage will naturally focus on the interest rate and fee as we look to keep the upfront costs and ongoing monthly repayments to a minimum.

However, recent Moneynet research highlights that it is equally important to check the costs of terminating your mortgage deal ahead of schedule, not something that you're really contemplating when you sign up for your new mortgage, but a very important one, particularly when you realise potential cost implications.

An early repayment charge (ERC) will be detailed in your mortgage agreement and will tell you how much of a financial penalty you would have to pay to get out of your deal before you reach the agreed maturity date.

If you look at the five-year fixed-rate products currently available as an example, many lenders will charge you 5 per cent of your mortgage balance to exit the deal in the first year, but in reality this is something you're quite unlikely to want to do.

The situation is different when you get to the last 18 months or so of your mortgage as you'll be taking more notice of the prevailing interest rates and starting to consider your options for when your current deal finishes.

This is where the difference in ERC charges is important, as in the final year in a five-year fixed deal, some lenders such as HSBC, The Co-operative Bank and Britannia will only charge 1 per cent of your balance as a get-out fee, while Northern Rock charges 4 per cent and Santander, Post Office and Nationwide are among those that will still require a hefty 5 per cent.

To give you an idea of the cost differential, someone with a £160,000 mortgage having to stump up a 5 per cent exit penalty would be faced with an eye-watering bill of £8,000 compared with a far more palatable £1,600 payable to a lender charging just 1 per cent.

For those with a smaller loan the costs will not be as great, however, the potential savings of moving to a lower rate will be smaller too, so the size of the ERC is still an important factor.

It's understandable for lenders to impose a high ERC at the beginning of a fixed mortgage, but to impose such steep fees in the final year of the deal is excessive and makes it highly unlikely that you would be better off switching to a new deal, even if it was at a considerably lower rate.

At the moment there will be people getting itchy feet as they see competitive 5-year deals, wishing they could move, but restricted by the high get-out costs. Next time you're in the market for a new fixed or discounted mortgage, don't be swayed purely by the headline rate and product fee, if there's a sizeable exit fee payable in the final year or so of the deal, it may be worth paying slightly more each month just to buy yourself some additional flexibility further down the line.

Which challenges card fees 'profiteering'

i'm sure I'm not the only one to have been a bit miffed by excessive charges imposed by websites for using a debit or credit card, and while I appreciate there are costs to the providers, these often bear little resemblance to sums being charged to the consumer, and in many cases appear little more than blatant profiteering.

It was therefore heartening to see that consumer champion Which? this week submitted a super- complaint to the Office of Fair Trading (OFT) in an attempt to put a stop to this unfair practice. As plastic increasingly becomes the most favoured and secure method of payment, it's only right that consumers should be protected against retailers who are charging many times the processing costs.

Websites should make their card charges clear at the outset, and not sneak them in at the very end of the purchase process, hoping that the customer, rather than choosing to shop elsewhere, will just cough up anyway.

Whether it's a ticket for the cinema, a train journey, or air fare, charging cost price for the transaction is fair enough, but the extortionate fees and percentage fees charged by some firms needs to be stamped out before it becomes the norm.

Let's hope the OFT stamps out this excessive charging once and for all.

Andrew Hagger is a money analyst at Moneynet.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Bruce, left, with Cream bandmates Ginger Rogers, centre, and Eric Clapton in 1967
people
PROMOTED VIDEO
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker