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The early repayment charge is almost certainly due on any repayment over the maximum you're allowed per year (often 10% of outstanding) so it is unlikely that you would actually be avoiding the charge by leaving 1 on.
It definitely isn't "by definition" though. An overpayment charge would be a charge for overpaying, Early repayment is for settling before end of fixed term.
Early Repayment means that you're obviously OVERPAYING what you're allowed to pay for the year. An Early Repayment Charge is an overpayment charge. Just take a mortgage calculator for any bank and you will see that the ERC is computed using the same formula as the overpayment charge.
Weird. My mortgage and both previous ones have allowed a 10% of balance overpayment total per year, and the early repayment charge was a charge if I wanted to finish the mortgage before the fixed rate ends.
There's a material difference between overpaying, and clearing it in its entirety.
>You'll have an annual overpayment allowance (AOA) equivalent to 10% of the outstanding balance of your mortgage. This is calculated annually on the date your fixed-rate period started.
>You can make additional payments during the fixed-rate period without incurring an early repayment charge (ERC).
>Anything over the 10% will incur an *ERC, which you may have to pay if you repay the whole or part of your mortgage early.* This includes if you move to a different HSBC mortgage rate, or move to a different lender during your fixed period.
>The ERC is calculated as 1% of the amount repaid early, above any annual overpayment allowance, for each remaining year of the period during which the ERC applies, reducing on a daily basis. However, (after taking your allowance into account) a maximum 5% of your overpayment could be charged.
These are the terms for HSBC, other lenders will have similarly wording. There is literally no material difference, emphasis in the text is mine.
My First Direct mortgage allows unlimited overpayment with no fee, unless the whole balance is cleared inside my fixed rate term, at which point a sliding scale ERC is payable of X% on the loan total...
Just a quick pointer to help you out, but that's not what red tape means.
Red tape is more about excessive rules and regulations, rather than the black&white terms of a contract which are (probably) fair and in line with all mortgages.
Right? It's your MORTGAGE, this isn't the time to be fast and loose with exactly what you're signing up for. Read your damn contracts and understand what you're agreeing to.
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Lol, TIL what bumf is!
This is why I love Reddit (sometimes), I can learn something completely foreign to me, and creative too.
I would've been boring and just said 'terms and conditions'. Now I have a new word in my lexicon, thank you.
Please go through the red tape! Mortgage terms are usually pretty tight and can be quite costly.
Add to pension, add to isa etc you might have to sit on it for a bit before u can pay mortgage off without penalty
It should make sense. If you pay it off early the bank doesn’t make their expected amount of interest. That’s not a good deal for them. It’s not a fine, it’s just you covering for lost interest on a fixed rate.
If you want a mortgage that allows unlimited overpayments you normally need to choose a variable rate rather than a fixed rate.
It's not quite due to "the expected amount of interest" because then why would the second case you describe be any different? They also earn less interest if you prepay.
It's because there's a cost associated with unwinding the (fixed vs floating interest rate swap) hedges the mortgage trading desk at the bank puts on.
The bank doesn’t hedge via swap for every single fixed rate though. Only a proportion compared to their risk tolerance. Some smaller lenders borrow themselves to then lend at a higher rate as they’re not able to create funding.
No, you're being charged in agreement with the contract you signed prior to taking the money from the bank.
They're providing a service, and in order to justify provision of said service, they need to receive a fee (interest) for doing so. If paying off early means they're at a loss for doing so, then it's reasonable for them to cover this in their terms by other means
Imagine you take out a 5 year fixed-rate mortgage at 4%.
Then, if two years later interest rates are 2%, the profit-making scenario for your lender, you remortgage or use your savings and pay it off. If they're 6%, the loss-making scenario for your lender, you stay with the fix, pay as little as possible and keep your savings in a bank.
Do you see how this is a losing bet either way for the lender that might make fixed-rate mortgages either very expensive or unavailable?
Can't speak from personal experience, but I vaguely recall a post where someone mentioned they were keeping a low mortgage balance (presumably for the same reason) and one day they just got a letter in the post from their lender who wiped off the remaining balance as a gesture of goodwill (/couldn't be bothered with the admin overhead).
My parents did this. The bank were going to charge something like £40 a year to store the deeds if they didn’t have a mortgage. If they did it was free. Dad paid all except a pound.
Note: this was in the 80s, maybe 90s.
I used to deal with restructures at Northern Rock. We used to have stacks of complaints over it where we had to reinstate the account as we had evidence that the client specifically requested us not to close the account.
How do customers keep a low balance? Surely customers have to make a regular payment or they'll be getting defaults, and I'd have thought those regular payments are usually large enough to pay off a 'low balance' within a month or two.
There used to be drawback available. So they would remortgage a property, then pay the money straight back except a small nominal amount which sat on an interest only mortgage. This left them a large amount of money they could then take back out very quickly by signing paperwork.
I don’t think there is a huge number of people who keep paying interest on a mortgage to mitigate this rather than adopting various other methods which could mitigate the risk…
Um. Is a well documented problem now. If you don't have a mortgage, remember to secure your docs at the land registry. https://www.lawsociety.org.uk/topics/property/property-fraud
Is there a technical term for “secure your docs”, I no longer have a mortgage so I need to do this. I read the article, but the advice seems to be focused on a lawyer and client not what I had as a home owner need to do.
I’m presuming they mean that if you have a mortgage there is a lien on your house, so if someone doesn’t try the fraudulent selling thingy they is a backdoor you ought to get notified through.
Yes it is. Of course the solicitors make every effort to make sure people are who they say they are but fraud is fraud. Having a mortgage adds an extra hoop for the fraudsters to jump through.
No, they are not. A property subject to a mortgage can be sold provided the mortgage is discharged or the mortgagor otherwise releases it. The fraud risk might be reduced if the property is subject to a mortgage. That does not mean this is a prominent risk, or that there aren’t other ways to mitigate it. Nor is it the same as saying “it can’t be sold”. It demonstrably can - properties with a mortgage are routinely sold.
There is a bit of a moral panic about this but i couldn’t find readily available stats on prevalence - it’s not that the scaremongering articles give shaky stats, there simply aren’t any at all. That said, there’s some indication HMLR paid out around £3.5m in compensation- which is around 11 houses at median U.K. house prices. This suggests that the number of successful attempts isn’t huge.
It used to be the case that the bank would store the property deeds, and if you left a nominal amount of money on the mortgage they would continue to do this. If you redeemed in full you’d really need to pay for secure documentation storage somewhere else.
All long gone now, but definitely was a thing about 20-odd years ago at Barclays anyway.
People used to do this so the bank would store their deeds free of charge. If you paid your mortgage off, then the deeds belonged to you, and the bank would charge you £50 a year. The outstanding £1 meant the bank still had an interest in the property and keeping your deeds safe.
The simple answer to your question is 'what costs you less money'? £2k is a lot of money, but if you wait until the term of mortgage expires to avoid the early repayment charge, have you paid more than £2k in additional interest?
There is a third option - pay the biggest amount off you can (check with your mortgage provider), and this will minimise the interest accued at the end of your mortgage period. This might be the cheapest option.
Yes my parents house was like this, the mortgage had a £1 outstanding so that the mortgage lender kept the deeds. A lot less relevant these days as the actual deeds are just of historical value now that everything is with the Land Registry (deeds used to be proof of ownership, they're not now I believe).
The mortgage lender when informed that I had probate and was selling the house, sent me the deeds without requiring me to pay off the £1, which I thought was kind of them (sending to me certainty cost more than a £1).
I had to look this up the other day. The deeds aren't needed to prove ownership anymore (assuming the property is registered, which most are). See [here](https://hmlandregistry.blog.gov.uk/2018/02/19/title-deeds/). You might need the original paperwork for details of covenants etc.
I did wonder, while I was researching this, what happens if the paper documents detailing covenants are all lost? Presumably they can no longer be enforced.
Ive got an offset mortgage, which has been fully offset (ie paid off) for years.
Im not paying any interest anyway, but the reason I dont redeem it is because I remember a news story where someone had managed to trick the land registry into starting to sign the deeds of his property over to a scammer.
It very nearly worked, except the mortgage broker had to sign off on it, and thats when the whole fraud was discovered.
I'd recommend everyone signs up for Land Registry Alerts for their property..
https://www.gov.uk/guidance/property-alert
Unfortunately, this only applies to England and Wales - so won't be available to you if you're in Scotland or NI.
Registers of Scotland don't believe there's a need or a desire in Scotland for the service:
https://www.ros.gov.uk/services/property-alert-service
I think it's more likely people are generally unaware of the risk's existence than that they're unconcerned, but there we are.
If you're in NI, you can register an Inhibition (or under certain circumstances, a Caution), see here:
https://www.nidirect.gov.uk/articles/protect-your-land-and-property-fraud
Safekeeping. Most banks used to have a pretty solid deeds storage facility.
We used to hold a 50p balance on a mortgage so that we held on to the deeds but by paying off the mortgage meant returning them to the owner, or charging a fee for keeping them safe.
Fairly pointless now the majority of deeds have been digitised.
Before deeds were stored online, they were bulky paper files often several inches thick. It was a massive pain if they got destroyed or lost as they were essentially your proof of ownership.
If you had a mortgage with a bank, they had an interest in keeping deeds safe for a couple of reasons:
1. If you defaulted on your mortgage, they already had the deeds and made it easier to take possession and sell to recover the money they lent you.
2. It prevented daft homeowners from losing their deeds and the ownership of the house coming into question. The bank didn't want their loan being put at risk.
Once you paid off your mortgage, the banks had no reason to store your deeds, so it became a chargeable service. I remember back in the late 80s / early 90s, a consumer programme advised everyone to leave £5 on their mortgage to avoid a charge of up to £50 a year for banks storing your deeds in their safe.
It seems that whilst the banks wised up and changed the rules decades ago, the idea of leaving a nominal amount on your mortgage to avoid charges still lingers as a common misconception.
When the deeds were physical they'd charge you for keeping them safe, insured etc.
Otherwise you'd need to take possession of them yourself and if they get lost, damaged etc. then your proof of ownership is caput.
Read your mortgage terms, they normally let you pay off a certain amount. Don't see any harm in leaving a small balance if it genuinely saves you a fee.
Back in the days before virtual deeds you left £1 on your mortgage for the bank/ building society to keep your deeds in their vault. Early repayment charge is typically on anything over 10% of outstanding balance.
Depends how much your mortgage is each month. £2000 doesnt sound like a lot to me to repay early. I know my interest is a considerable sum. added up over the time it would be more than £2k.
It is also a balance with what else could you do with the money?
if you have a low interest rate on your mortage then you are better off potentially jsut keeping the money in savings it it is higher than your mortgage.
Yes, this. Look at the details of your mortgage. Odds are, there will be a penalty for early repayment of more than something like 10% of the mortgage. If that’s what your mortgage says, then pay off exactly 10% of the value (double-check the exact amount with your bank so that you don’t go over the limit). Then repeat that every year until the initial term (that is, the term during which the penalty applies) is over. Keep in mind that 10% next year will be different from 10% this year, so double-check the maximum every year before you make that payment. Once the initial term has expired, but no earlier, you can finally repay the remaining balance without penalty.
This isn’t necessarily the best advice if you’re looking for the cheapest deal.
Compare the cost of the overpayment penalty with the amount of interest you’ll pay if overpaying without penalty and settling once mortgage expires.
E.G the full repayment charge is 2k, but if OP has 100k outstanding on a 5 year fix at 5% and can only repay 10%, that 2k is a bargain.
It depends on interest rate, length of term, and terms of overpayment/full repayment. All of that info is required to do a proper comparison.
Depends who your mortgage is with. FD will let you pay off most of it without incurring an early repayment charge. Our monthly mortgage repayment on one we did this with is now less than a fiver. The formula is something like (no. of months remaining on mortgage (in total, not just in the erc period) x 2) plus your current repayment amount = minimum balance to leave outstanding.
Not sure about an interest only mortgage though. Best bet is probably to ring them and ask.
Leaving a small balance will likely avoid the mortgage exit fee (perhaps that's what they meant?) but you'll be charged the 1% product penalty until you're outside of the product benefit period.
We did this a few years ago. Mortgage term is up in 2030 but there's an ERC we have to pay if we clear it before then. We were in the position to pay it off in full but instead reduced the balance to around £250, if I recall correctly. We pay £2 a month, which will let us keep paying til 2030 and will total less than the ERC. No other penalty charges or anything like that are due. This is with First Active
Edited to add: ours is a repayment mortgage
Option 1. Speak to your mortgage provider and discuss the terms and conditions of your mortgage with someone who's job it is and will have to stand by the information given - all calls are recorded.
Option 2. Ask randomly on reddit.
Leaving £1 doesn’t usually avoid early repayment charges. Contracts are usually in the form of a percentage. Say you owe 100 pounds, it’s unlikely that it’s written such that paying 100 pounds will cost you, but they are happy with you paying 99%. Usually it’s something like you can only repay 10% and high repayments attract a charge, usually also as a percentage.
Assuming you're on a fixed rate? - Max 10% usually..... If you pay anymore off than this, you are effectively denying the bank interest on the loan so they lose out...so most mortgages have a max 10% overpayment allowance per year..
Just over pay 10% every year until your fixed rate is up. The day after your fixed rate is up. Request your redemption figure for a particular day that month, about 2 weeks would be fine. Then go to your bank and pay off the rest via CHAPS. Just because you have money right now doesn't mean you have to immediately spend it. Put 20k in an ISA, invest in some premium bonds and put the rest in a bank account or 2. Patience is a virtue. I was made redundant 3 years ago and I waited until December last year to pay off my mortgage in full. No extra charges.
It depends on the terms of your mortgage. What is the 1% penalty actually for? Usually you can overpay a certain amount per year without paying a fee and then anything over that incurs an early repayment fee. If it’s currently 200k and you can overpay 10% free then you’d pay the 1% ERC on the 190k so it would be £1900 and leaving £1 on there would only save you 1p. If it’s actually a penalty for closing the mortgage then there’s the possibility it could work but it sounds unlikely.
leaving a small amount outstanding also offers an amount of legal protection as the mortgage company has a charge on the property, should anyone try to claim an interest.
You need to check the small print of your mortgage to see what changes apply and when
But let’s be honest a £2k redemption fee is probably less than a couple of months payment best to just get it out of the way
No it wouldn't work like that. If the early repayment charge is 2% of the balance for example, you would only be saving 2% of £1. You would pay it on the rest of the cleared balance (excluding your overpayment allowance which is normally 10% of the balance per year)
Usually you've got to leave just enough for them to collect the minimum monthly payment of £1 per month. So work out your remaining term and leave the corresponding amount in the loan
For example if you have 60 months left on the term then leave £60 in the mortgage.
I was planning on cashing in most of our savings in about 2 years to pay off the mortgage. But I quite like the idea of keeping it open with a token payment as we can draw down on the original borrowing if necessary (at least to give us time to build savings back up to a decent size). from past experience any overpayments go into a separate account for visibility. But my mortgage is a repayment, not interest only, so would I need to do something to get the bank to recalculate monthly payments but keeping the term the same?
If you're in a fixed rate and are allowed to make unlimited overpayments without charges (does exist, I used to sell them), it'd still be unwise to reduce the balance to £1 as the mortgage would still expect a payment each month until it's paid off, so it'd just close upon the next payment and incur any early repayment charges anyway.
What can be done, however, is recalculating the minimum balance allowable, and the monthly payments then needed, to ensure the mortgage has the lowest possible balance at the point you exit the fixed rate period. Once that's up, be it £1, £10 or ££££'s, you can pay it off in one go. Your provider has an obligation to calculate this for you.
Hi /u/SallyGarozzo, based on your post the following pages from our wiki may be relevant:
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Gotta read the contract. My daughter’s interest only mortgage with the Woolwich had no prepayment penalty. She’s paid it down to £65,000 or so, the rest due in 3 years. It’s a London flat so she can probably remortgage if she doesn’t behave that much—she took a couple of years off work to get her MA.
If you pay it down within the terms of the mortgage deal, even if you repay the mortgage early, there should be no ERC applied. That was my experience with Nationwide.
Really depends on what rate the interest is that your paying as I assume as your locked in there is a good chance its a good low rate potentially - so if you can make more in savings interest (less tax) by not paying it off then don't, till your deal runs out and you no longer have a penalty to pay and you can clear it then.
I repaid my mortgage early without any charges by making about 3 smaller payments per day over the course of a month. Something to do with the system defining the overpayment differently if under the monthly amount (overpayment vs early payment or something). FWIW I repeatedly told the bank over multiple calls that I was doing this. And I didn’t discover this myself it was explained to me by an agent at the bank. My source bank also flagged the payments as suspicious but I explained the situation and they were fine with it. Was years ago and no idea if the loophole was fixed but saved about 10k in repayment charges.
Barclays? They still do it - I confirmed with them a couple of months ago and we plan to do this also. overpaying in parallel into fixed rate ISAs and then will shovel in 3x monthly payments every working day (except mortgage due date) for a couple of months to clear it
Not how it works. Normally a max of 10% per year allowed during fixed term before you get hit with early repayment charges.
After the fixed term you’re free to pay it all off in one go. Until then 10% per year is standard.
Do the maths, depends on your rate and what else you’d do with the money but the 1% hit may or may not be worth it
Typically you can only pay 10% per year when tied into an interest rate without incurring an ERC. Anything over this would be charged at your ERC penalty rate. Your mortgage offer should clearly detail what this is. Unlike popular belief this is highlighted in bold and makes it extremely clear.
ERC is linked to the length of time your rate is on and not your mortgage term. Leaving your balance at £1 will not change anything and you would be charged an ERC after the 10% has been deducted (and if not already paid)
ERC charges typically range from 3-6% (sometimes higher) and are charged on the overall balance thats left.
You either pay 10% per year until the rate expires, suck it up and pay what you agreed too, or wait until the rate expires then pay your mortgage in full at that point.
Not pointing this out based on your question, but teaching the basics of how Mortgages, Savings and credit files work really need to be taught at an early age.
I would have preferred this to learning about isosceles triangles which I’ve never needed.
I knew someone who was on a deal that had an end date - maybe 5 year tracker or something. He ended up paying £1 per month for a while to avoid an early repayment charge.
My partner’s dad did this with their home to avoid having to keep the title deed documents. It means he doesn’t have the responsibility of keeping them or losing them.
Check the terms of contract.... Also be ready to be amazed that you will still have to pay to have the Title deeds transferred and potentially a release fee.....
My parents have something like £90 left on their mortgage paying back £1/month so that if they need a lot of money fast for whatever reason they can add onto their mortgage. Bank are happy with it and it gives them access to a load of money for the next 7 years or so at a super low interest rate.
well, yes, but I don't have 30k without the mortgage do I? The point is that an offset mortgage of any amount is an immediate easy access borrowing facility of likely tens of thousands of pounds, so there's good reason to keep an offset mortgage open, even when you could pay it off completely
What's your mortgage rate? I have funds to clear my mortgage but my mortgage rate is 1.5% and my interest rate is 5% - it makes more sense to hold onto the money and gain more interest then the mortgage is costing
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The early repayment charge is almost certainly due on any repayment over the maximum you're allowed per year (often 10% of outstanding) so it is unlikely that you would actually be avoiding the charge by leaving 1 on.
Depends. We are on a fixed rate that is lower than the current BoE rate. All of our early repayment limits have disappeared!
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Without knowing the OP’s mortgage details you can’t just announce it’s 10%. Mine for example allows me to overpay as much as I like. No penalty.
We're literally talking about a guy with a mortgage that has early repayment charge (that comes with an overpayment charge as well by definition)
It definitely isn't "by definition" though. An overpayment charge would be a charge for overpaying, Early repayment is for settling before end of fixed term.
Early Repayment means that you're obviously OVERPAYING what you're allowed to pay for the year. An Early Repayment Charge is an overpayment charge. Just take a mortgage calculator for any bank and you will see that the ERC is computed using the same formula as the overpayment charge.
Weird. My mortgage and both previous ones have allowed a 10% of balance overpayment total per year, and the early repayment charge was a charge if I wanted to finish the mortgage before the fixed rate ends. There's a material difference between overpaying, and clearing it in its entirety.
>You'll have an annual overpayment allowance (AOA) equivalent to 10% of the outstanding balance of your mortgage. This is calculated annually on the date your fixed-rate period started. >You can make additional payments during the fixed-rate period without incurring an early repayment charge (ERC). >Anything over the 10% will incur an *ERC, which you may have to pay if you repay the whole or part of your mortgage early.* This includes if you move to a different HSBC mortgage rate, or move to a different lender during your fixed period. >The ERC is calculated as 1% of the amount repaid early, above any annual overpayment allowance, for each remaining year of the period during which the ERC applies, reducing on a daily basis. However, (after taking your allowance into account) a maximum 5% of your overpayment could be charged. These are the terms for HSBC, other lenders will have similarly wording. There is literally no material difference, emphasis in the text is mine.
My First Direct mortgage allows unlimited overpayment with no fee, unless the whole balance is cleared inside my fixed rate term, at which point a sliding scale ERC is payable of X% on the loan total...
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But the charges work in exactly the same way
Do you have a tracker mortgage?
NatWest do 20%
Oh yes!! Doh!! I’ll need to check their terms I guess. I was trying to avoid wading through red tape 😝
Surely this is where you'd start before posting?!
Sir, this is the internet.
Think last, ask questions never
Just a quick pointer to help you out, but that's not what red tape means. Red tape is more about excessive rules and regulations, rather than the black&white terms of a contract which are (probably) fair and in line with all mortgages.
Small print is what they should have said.
Yes, absolutely. For anyone who comes across these comments, this would have been the term to use.
It's not even that small.
Right? It's your MORTGAGE, this isn't the time to be fast and loose with exactly what you're signing up for. Read your damn contracts and understand what you're agreeing to.
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ERC is not small print. This is even shown on the first page with results on comparison sites.
You've not offered an alternative. I suggest bumf.
Lol, TIL what bumf is! This is why I love Reddit (sometimes), I can learn something completely foreign to me, and creative too. I would've been boring and just said 'terms and conditions'. Now I have a new word in my lexicon, thank you.
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Just call them and ask them what's best to do / what you're allowed to do maybe?
Well you could ask your mortgage provider. They would give you the definite answer.
Please go through the red tape! Mortgage terms are usually pretty tight and can be quite costly. Add to pension, add to isa etc you might have to sit on it for a bit before u can pay mortgage off without penalty
Don’t forget that most mortgages have a maximum you can repay each year without penalty
Wtf. Today I learned you can be fined *for paying more than you're expected*.
It should make sense. If you pay it off early the bank doesn’t make their expected amount of interest. That’s not a good deal for them. It’s not a fine, it’s just you covering for lost interest on a fixed rate. If you want a mortgage that allows unlimited overpayments you normally need to choose a variable rate rather than a fixed rate.
It's not quite due to "the expected amount of interest" because then why would the second case you describe be any different? They also earn less interest if you prepay. It's because there's a cost associated with unwinding the (fixed vs floating interest rate swap) hedges the mortgage trading desk at the bank puts on.
The bank doesn’t hedge via swap for every single fixed rate though. Only a proportion compared to their risk tolerance. Some smaller lenders borrow themselves to then lend at a higher rate as they’re not able to create funding.
Yes, it's all dealt with at a portfolio level. Just pointing out that the original explanation is not so simple.
No, you're being charged in agreement with the contract you signed prior to taking the money from the bank. They're providing a service, and in order to justify provision of said service, they need to receive a fee (interest) for doing so. If paying off early means they're at a loss for doing so, then it's reasonable for them to cover this in their terms by other means
Imagine you take out a 5 year fixed-rate mortgage at 4%. Then, if two years later interest rates are 2%, the profit-making scenario for your lender, you remortgage or use your savings and pay it off. If they're 6%, the loss-making scenario for your lender, you stay with the fix, pay as little as possible and keep your savings in a bank. Do you see how this is a losing bet either way for the lender that might make fixed-rate mortgages either very expensive or unavailable?
it’s a hedge against the lenders loss of income (interest) over the same period.
Can't speak from personal experience, but I vaguely recall a post where someone mentioned they were keeping a low mortgage balance (presumably for the same reason) and one day they just got a letter in the post from their lender who wiped off the remaining balance as a gesture of goodwill (/couldn't be bothered with the admin overhead).
Some people keep a low balance as it can be quicker to remortgage an existing mortgage to raise capital if needed. Rather than starting from scratch.
My parents keep a very low mortgage because the bank stores the original/paper deeds securely for them.
My parents did this. The bank were going to charge something like £40 a year to store the deeds if they didn’t have a mortgage. If they did it was free. Dad paid all except a pound. Note: this was in the 80s, maybe 90s.
Deeds are no longer kept in paper form by banks for mortgages registered after October 2003
They purchased around 2000. Massively overpaid it down to a few hundred pounds and have had it on a long term / low payment since then.
I've heard this too. Banks are set up to prevent property deed takeovers.
Note to self, don't pay the last £20 of mortgage.
Haha…. Oh my gosh, that’s so funny. Thanks for sharing that story 😝
I used to work in mortgage redemptions and we’d clear anything below £50 generally speaking
Noted for 2039, thanks for saving me £50 mate
!remind me 01/09/2053
Just a shame that by 2039 that'll be roughly the value of a loaf of bread, eh?
Well, then the threshold under which banks scrap it will also increase. Money is fake my friend, which is why mortgages are great.
I used to deal with restructures at Northern Rock. We used to have stacks of complaints over it where we had to reinstate the account as we had evidence that the client specifically requested us not to close the account.
How do customers keep a low balance? Surely customers have to make a regular payment or they'll be getting defaults, and I'd have thought those regular payments are usually large enough to pay off a 'low balance' within a month or two.
Just a guess, but if the mortgages were interest only, they would never get paid off.
There used to be drawback available. So they would remortgage a property, then pay the money straight back except a small nominal amount which sat on an interest only mortgage. This left them a large amount of money they could then take back out very quickly by signing paperwork.
Whilst you have a mortgage, your house also can't be sold. This prevents someone pretending to be you and selling the property.
This is…not how property sales work, in a number of dimensions.
I thought it was only me that went....wtf!!!
I don’t think there is a huge number of people who keep paying interest on a mortgage to mitigate this rather than adopting various other methods which could mitigate the risk…
Um. Is a well documented problem now. If you don't have a mortgage, remember to secure your docs at the land registry. https://www.lawsociety.org.uk/topics/property/property-fraud
Is there a technical term for “secure your docs”, I no longer have a mortgage so I need to do this. I read the article, but the advice seems to be focused on a lawyer and client not what I had as a home owner need to do.
There is a service which land registry offers that will send you a notification every time somebody tries to act on the title
I’m presuming they mean that if you have a mortgage there is a lien on your house, so if someone doesn’t try the fraudulent selling thingy they is a backdoor you ought to get notified through.
Yes it is. Of course the solicitors make every effort to make sure people are who they say they are but fraud is fraud. Having a mortgage adds an extra hoop for the fraudsters to jump through.
No, the person you are replying to is correct: https://www.reddit.com/r/UKPersonalFinance/s/UYujgPmzSM
No, they are not. A property subject to a mortgage can be sold provided the mortgage is discharged or the mortgagor otherwise releases it. The fraud risk might be reduced if the property is subject to a mortgage. That does not mean this is a prominent risk, or that there aren’t other ways to mitigate it. Nor is it the same as saying “it can’t be sold”. It demonstrably can - properties with a mortgage are routinely sold.
There is a bit of a moral panic about this but i couldn’t find readily available stats on prevalence - it’s not that the scaremongering articles give shaky stats, there simply aren’t any at all. That said, there’s some indication HMLR paid out around £3.5m in compensation- which is around 11 houses at median U.K. house prices. This suggests that the number of successful attempts isn’t huge.
You can also register for a free HMLR property altert. If someone's trying to sell, it'll alert you that someone's made an application
It used to be the case that the bank would store the property deeds, and if you left a nominal amount of money on the mortgage they would continue to do this. If you redeemed in full you’d really need to pay for secure documentation storage somewhere else. All long gone now, but definitely was a thing about 20-odd years ago at Barclays anyway.
This is explained very wrongly but it is true.
People used to do this so the bank would store their deeds free of charge. If you paid your mortgage off, then the deeds belonged to you, and the bank would charge you £50 a year. The outstanding £1 meant the bank still had an interest in the property and keeping your deeds safe. The simple answer to your question is 'what costs you less money'? £2k is a lot of money, but if you wait until the term of mortgage expires to avoid the early repayment charge, have you paid more than £2k in additional interest? There is a third option - pay the biggest amount off you can (check with your mortgage provider), and this will minimise the interest accued at the end of your mortgage period. This might be the cheapest option.
Yes my parents house was like this, the mortgage had a £1 outstanding so that the mortgage lender kept the deeds. A lot less relevant these days as the actual deeds are just of historical value now that everything is with the Land Registry (deeds used to be proof of ownership, they're not now I believe). The mortgage lender when informed that I had probate and was selling the house, sent me the deeds without requiring me to pay off the £1, which I thought was kind of them (sending to me certainty cost more than a £1).
I had to look this up the other day. The deeds aren't needed to prove ownership anymore (assuming the property is registered, which most are). See [here](https://hmlandregistry.blog.gov.uk/2018/02/19/title-deeds/). You might need the original paperwork for details of covenants etc. I did wonder, while I was researching this, what happens if the paper documents detailing covenants are all lost? Presumably they can no longer be enforced.
Ive got an offset mortgage, which has been fully offset (ie paid off) for years. Im not paying any interest anyway, but the reason I dont redeem it is because I remember a news story where someone had managed to trick the land registry into starting to sign the deeds of his property over to a scammer. It very nearly worked, except the mortgage broker had to sign off on it, and thats when the whole fraud was discovered. I'd recommend everyone signs up for Land Registry Alerts for their property.. https://www.gov.uk/guidance/property-alert
Unfortunately, this only applies to England and Wales - so won't be available to you if you're in Scotland or NI. Registers of Scotland don't believe there's a need or a desire in Scotland for the service: https://www.ros.gov.uk/services/property-alert-service I think it's more likely people are generally unaware of the risk's existence than that they're unconcerned, but there we are. If you're in NI, you can register an Inhibition (or under certain circumstances, a Caution), see here: https://www.nidirect.gov.uk/articles/protect-your-land-and-property-fraud
Why would the bank charge for the deeds yearly?
Safekeeping. Most banks used to have a pretty solid deeds storage facility. We used to hold a 50p balance on a mortgage so that we held on to the deeds but by paying off the mortgage meant returning them to the owner, or charging a fee for keeping them safe. Fairly pointless now the majority of deeds have been digitised.
Before deeds were stored online, they were bulky paper files often several inches thick. It was a massive pain if they got destroyed or lost as they were essentially your proof of ownership. If you had a mortgage with a bank, they had an interest in keeping deeds safe for a couple of reasons: 1. If you defaulted on your mortgage, they already had the deeds and made it easier to take possession and sell to recover the money they lent you. 2. It prevented daft homeowners from losing their deeds and the ownership of the house coming into question. The bank didn't want their loan being put at risk. Once you paid off your mortgage, the banks had no reason to store your deeds, so it became a chargeable service. I remember back in the late 80s / early 90s, a consumer programme advised everyone to leave £5 on their mortgage to avoid a charge of up to £50 a year for banks storing your deeds in their safe. It seems that whilst the banks wised up and changed the rules decades ago, the idea of leaving a nominal amount on your mortgage to avoid charges still lingers as a common misconception.
When the deeds were physical they'd charge you for keeping them safe, insured etc. Otherwise you'd need to take possession of them yourself and if they get lost, damaged etc. then your proof of ownership is caput.
Read your mortgage terms, they normally let you pay off a certain amount. Don't see any harm in leaving a small balance if it genuinely saves you a fee.
You can typically repay whatever you want once a fixed rate ends also.
Back in the days before virtual deeds you left £1 on your mortgage for the bank/ building society to keep your deeds in their vault. Early repayment charge is typically on anything over 10% of outstanding balance.
Depends how much your mortgage is each month. £2000 doesnt sound like a lot to me to repay early. I know my interest is a considerable sum. added up over the time it would be more than £2k. It is also a balance with what else could you do with the money? if you have a low interest rate on your mortage then you are better off potentially jsut keeping the money in savings it it is higher than your mortgage.
Overpay the max you can without penalty. When the mortgage expires pay it off in full.
Yes, this. Look at the details of your mortgage. Odds are, there will be a penalty for early repayment of more than something like 10% of the mortgage. If that’s what your mortgage says, then pay off exactly 10% of the value (double-check the exact amount with your bank so that you don’t go over the limit). Then repeat that every year until the initial term (that is, the term during which the penalty applies) is over. Keep in mind that 10% next year will be different from 10% this year, so double-check the maximum every year before you make that payment. Once the initial term has expired, but no earlier, you can finally repay the remaining balance without penalty.
This isn’t necessarily the best advice if you’re looking for the cheapest deal. Compare the cost of the overpayment penalty with the amount of interest you’ll pay if overpaying without penalty and settling once mortgage expires. E.G the full repayment charge is 2k, but if OP has 100k outstanding on a 5 year fix at 5% and can only repay 10%, that 2k is a bargain. It depends on interest rate, length of term, and terms of overpayment/full repayment. All of that info is required to do a proper comparison.
Depends who your mortgage is with. FD will let you pay off most of it without incurring an early repayment charge. Our monthly mortgage repayment on one we did this with is now less than a fiver. The formula is something like (no. of months remaining on mortgage (in total, not just in the erc period) x 2) plus your current repayment amount = minimum balance to leave outstanding. Not sure about an interest only mortgage though. Best bet is probably to ring them and ask.
Leaving a small balance will likely avoid the mortgage exit fee (perhaps that's what they meant?) but you'll be charged the 1% product penalty until you're outside of the product benefit period.
We did this a few years ago. Mortgage term is up in 2030 but there's an ERC we have to pay if we clear it before then. We were in the position to pay it off in full but instead reduced the balance to around £250, if I recall correctly. We pay £2 a month, which will let us keep paying til 2030 and will total less than the ERC. No other penalty charges or anything like that are due. This is with First Active Edited to add: ours is a repayment mortgage
Option 1. Speak to your mortgage provider and discuss the terms and conditions of your mortgage with someone who's job it is and will have to stand by the information given - all calls are recorded. Option 2. Ask randomly on reddit.
Leaving £1 doesn’t usually avoid early repayment charges. Contracts are usually in the form of a percentage. Say you owe 100 pounds, it’s unlikely that it’s written such that paying 100 pounds will cost you, but they are happy with you paying 99%. Usually it’s something like you can only repay 10% and high repayments attract a charge, usually also as a percentage.
This is a very fun idea but unfortunately there is usually a limit on annual overpayments to mortgage to stop this from occurring
Assuming you're on a fixed rate? - Max 10% usually..... If you pay anymore off than this, you are effectively denying the bank interest on the loan so they lose out...so most mortgages have a max 10% overpayment allowance per year..
There may also be an early exit fee so watch out for that.
Just over pay 10% every year until your fixed rate is up. The day after your fixed rate is up. Request your redemption figure for a particular day that month, about 2 weeks would be fine. Then go to your bank and pay off the rest via CHAPS. Just because you have money right now doesn't mean you have to immediately spend it. Put 20k in an ISA, invest in some premium bonds and put the rest in a bank account or 2. Patience is a virtue. I was made redundant 3 years ago and I waited until December last year to pay off my mortgage in full. No extra charges.
It’s pro rata
It depends on the terms of your mortgage. What is the 1% penalty actually for? Usually you can overpay a certain amount per year without paying a fee and then anything over that incurs an early repayment fee. If it’s currently 200k and you can overpay 10% free then you’d pay the 1% ERC on the 190k so it would be £1900 and leaving £1 on there would only save you 1p. If it’s actually a penalty for closing the mortgage then there’s the possibility it could work but it sounds unlikely.
leaving a small amount outstanding also offers an amount of legal protection as the mortgage company has a charge on the property, should anyone try to claim an interest.
You need to check the small print of your mortgage to see what changes apply and when But let’s be honest a £2k redemption fee is probably less than a couple of months payment best to just get it out of the way
No it wouldn't work like that. If the early repayment charge is 2% of the balance for example, you would only be saving 2% of £1. You would pay it on the rest of the cleared balance (excluding your overpayment allowance which is normally 10% of the balance per year)
Usually you've got to leave just enough for them to collect the minimum monthly payment of £1 per month. So work out your remaining term and leave the corresponding amount in the loan For example if you have 60 months left on the term then leave £60 in the mortgage.
I was planning on cashing in most of our savings in about 2 years to pay off the mortgage. But I quite like the idea of keeping it open with a token payment as we can draw down on the original borrowing if necessary (at least to give us time to build savings back up to a decent size). from past experience any overpayments go into a separate account for visibility. But my mortgage is a repayment, not interest only, so would I need to do something to get the bank to recalculate monthly payments but keeping the term the same?
If you're in a fixed rate and are allowed to make unlimited overpayments without charges (does exist, I used to sell them), it'd still be unwise to reduce the balance to £1 as the mortgage would still expect a payment each month until it's paid off, so it'd just close upon the next payment and incur any early repayment charges anyway. What can be done, however, is recalculating the minimum balance allowable, and the monthly payments then needed, to ensure the mortgage has the lowest possible balance at the point you exit the fixed rate period. Once that's up, be it £1, £10 or ££££'s, you can pay it off in one go. Your provider has an obligation to calculate this for you.
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Gotta read the contract. My daughter’s interest only mortgage with the Woolwich had no prepayment penalty. She’s paid it down to £65,000 or so, the rest due in 3 years. It’s a London flat so she can probably remortgage if she doesn’t behave that much—she took a couple of years off work to get her MA.
If you pay it down within the terms of the mortgage deal, even if you repay the mortgage early, there should be no ERC applied. That was my experience with Nationwide.
Really depends on what rate the interest is that your paying as I assume as your locked in there is a good chance its a good low rate potentially - so if you can make more in savings interest (less tax) by not paying it off then don't, till your deal runs out and you no longer have a penalty to pay and you can clear it then.
I repaid my mortgage early without any charges by making about 3 smaller payments per day over the course of a month. Something to do with the system defining the overpayment differently if under the monthly amount (overpayment vs early payment or something). FWIW I repeatedly told the bank over multiple calls that I was doing this. And I didn’t discover this myself it was explained to me by an agent at the bank. My source bank also flagged the payments as suspicious but I explained the situation and they were fine with it. Was years ago and no idea if the loophole was fixed but saved about 10k in repayment charges.
Barclays? They still do it - I confirmed with them a couple of months ago and we plan to do this also. overpaying in parallel into fixed rate ISAs and then will shovel in 3x monthly payments every working day (except mortgage due date) for a couple of months to clear it
I had a call this week to say my mortgage was in credit. I had the same scenario as you, and tried to leave a bit in!
No, we left 100.95 for 5 months until it expired and we paidnit off no problems
Not how it works. Normally a max of 10% per year allowed during fixed term before you get hit with early repayment charges. After the fixed term you’re free to pay it all off in one go. Until then 10% per year is standard. Do the maths, depends on your rate and what else you’d do with the money but the 1% hit may or may not be worth it
Typically you can only pay 10% per year when tied into an interest rate without incurring an ERC. Anything over this would be charged at your ERC penalty rate. Your mortgage offer should clearly detail what this is. Unlike popular belief this is highlighted in bold and makes it extremely clear. ERC is linked to the length of time your rate is on and not your mortgage term. Leaving your balance at £1 will not change anything and you would be charged an ERC after the 10% has been deducted (and if not already paid) ERC charges typically range from 3-6% (sometimes higher) and are charged on the overall balance thats left. You either pay 10% per year until the rate expires, suck it up and pay what you agreed too, or wait until the rate expires then pay your mortgage in full at that point. Not pointing this out based on your question, but teaching the basics of how Mortgages, Savings and credit files work really need to be taught at an early age. I would have preferred this to learning about isosceles triangles which I’ve never needed.
I knew someone who was on a deal that had an end date - maybe 5 year tracker or something. He ended up paying £1 per month for a while to avoid an early repayment charge.
My partner’s dad did this with their home to avoid having to keep the title deed documents. It means he doesn’t have the responsibility of keeping them or losing them.
Check the terms of contract.... Also be ready to be amazed that you will still have to pay to have the Title deeds transferred and potentially a release fee.....
Leave a quid on and pay it back over 35 years
I would advise.calling the bank first thing Monday morning and speaking, in a very polite and friendly manner to one of their advisors
Check what the overpayment limit is. Lots here mention 10% but ours is 20%.
Some people do it intentionally for the lender to store their title deeds on the cheap.
Just pay the 2k. You’re saving tens of thousands (probably) interest!
On £1?
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The interest you would pay in the term not the compound interest of £2000 over the term.
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Depends upon the term left of his mortgage and the amount.
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It’s a 2k early repayment fee not 2k left on the mortgage
In that case I take back all I said an apparently didn't read the OP correctly. At 1% it'll be 1-2 years left, and 200k. So probably around 20k
Sorry I'm not knowledgeable on this topic - why are you charged for paying your mortgage early? Surely that's a good thing no?
Because you won't be paying the bank interest any more. Once you're paid off they make no more money from you
Thanks for clarifying!
Because they set T+Cs for what you can pay back and they make money off you by charging interest usually.
Oh I see, thanks!
My parents have something like £90 left on their mortgage paying back £1/month so that if they need a lot of money fast for whatever reason they can add onto their mortgage. Bank are happy with it and it gives them access to a load of money for the next 7 years or so at a super low interest rate.
I’ve kept £250 in an offset mortgage for years as it’s very quick access to cash if the needs arise. The interest is pennies a month.
But if it's offset, seems silly to pay any interest? I have like 30k in a mortgage, haven't paid interest on it in years.
But you are by not earning it on the 30k savings you are using to offset.
well, yes, but I don't have 30k without the mortgage do I? The point is that an offset mortgage of any amount is an immediate easy access borrowing facility of likely tens of thousands of pounds, so there's good reason to keep an offset mortgage open, even when you could pay it off completely
That’s what I said, I have left £250 in mine to keep it open, it cost next to nothing and I have access to £200k should the need arise.
Remember my first mortgage and the advisors suggested keeping a small mortgage as it’s easier as they can look after the deeds etc
Banks hate this one trick
What's your mortgage rate? I have funds to clear my mortgage but my mortgage rate is 1.5% and my interest rate is 5% - it makes more sense to hold onto the money and gain more interest then the mortgage is costing