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Exit fees can come in the form of discharge fees and early repayment fees. Lenders have these in place primarily to deter borrowers from changing mortgages frequently, but also to cover costs they incur as part of the process.
The fee for your lender to release your title deeds in order for you to switch or end your mortgage can vary from £0 to £300. Lenders can also charge what they refer to as ‘early discharge’ or ‘early termination fees’. You might have to pay this if you repay the loan amount completely within a stipulated timeframe, for example within the first five years. The flipside is that the law states that these charges cannot exceed the losses incurred by lenders owing to such early loan terminations. The most important takeaway to remember is that if you feel these charges are excessive or unfair, don’t hesitate to lodge a complaint with your lender.
Just how much you have to pay in the form of exit fees depends on the kind of mortgage you have. In any case, expect to pay discharge fees, which lenders charge to cover administrative costs. If you have a fixed rate mortgage and want to exit early, you can expect your lender to charge an exit fee.
Early repayment fees, depend on multiple factors like the original mortgage amount, outstanding balance, how much time remains on the fixed term and the prevailing interest rate. The higher the outstanding balance, the higher the fee. The same also applies with the remaining loan term. When it comes to the interest rate, lenders compare the interest rate of loans with the prevailing interest rate—if the prevailing interest rate is lower, expect to pay exit fees.
Irrespective of the reason, knowing just how much you have to pay in the form of early repayment fees can help you make an informed decision about your mortgage. Remember that there’s no standardised fee and you can ask your lender ahead of time how much you might have to pay if you choose to repay your loan sooner than scheduled.
While having to pay some kind of a fee is almost guaranteed if you choose to repay your loan ahead of time, you can take certain measures to avoid them. If you have a variable rate mortgage, you can attempt to ask your lender to waive the fee. If that doesn’t work, you can ask your lender to at least offer you some kind of a discount considering that variable rate mortgages today don’t charge it.
If you’re looking at remortgaging options owing to better interest rates, consider pressuring your lender into offering a discount by stating that you wish to remortgage rather than leaving your loan. To keep your business, they may match the offer you have presented to them. With this discount in place, you don’t have to worry about remortgaging and the associated exit fees. However, before you bargain with your bank, make sure you study existing options in the market so you know exactly what you’re up against.
People who know they’ll own their homes for limited periods should look for mortgages that charge little or no exit fees, even if it means looking for mortgages with slightly higher interest rates. Most importantly, read all the fine print relating to exit fees carefully when you apply for a loan, as this can save you considerable heartache later.
If you’ve decided that you want to pay off your loan ahead of time or that you want to switch to a new loan, establish just how much you’ll have to pay as part of the process after accounting for all exit and early repayment fees. If you’re looking for refinancing options, compare the rates of existing mortgages and find out if you’ll actually save by making the switch. If you’ll save money, go for it.
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