Explaining More About An ERC
During the process of looking at a remortgage a term that may come up is "ERC", or early redemption charges. An ERC is a charge that can occur if you pay off your loan early or switch your mortgage within a certain time period. This would have been put into your mortgage loan agreement when you first obtained your mortgage loan. It is not something that is added after the fact.
ERCs are common with many fixed rates, capped rates, or cash back mortgages. An ERC can be calculated as equal to several months of the mortgage’s interest. An ERC could run into thousands of pounds. I could also be a percentage of the original mortgage loan value, a percentage of the balance still owed, or a percentage of the amount already paid. Often the level of the redemption fee lowers over times. It can be higher within the early stages of the loan and reduce over the years.
Why do lenders add an ERC?
The reason an ERC is added to a mortgage is to put added protection for the lender into the loan. Since and ERC is usually attached to a loan with a considerable discount of the mortgage interest rate it is put in place to recoup lost interest should a loan be paid off early.
Since ERCs can amount to thousands of pounds, discovering if your current mortgage has an ERC would be appropriate when considering a remortgage. A lender or broker will be able to discover if there is an ERC associated with your mortgage.