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On completing a new mortgage, most consumers will be fully aware of any initial set-up fees they are required to pay, usually choosing their mortgage based on the interest rate and fees. But what consumers may not realise is that many providers also charge exit fees. This means that if you’re not careful, you may in effect end up paying twice.
The redemption administration fee, which can also be called an exit fee or discharge fee, is basically an administration fee that you may have to pay when you repay your mortgage or move your mortgage from your existing lender.
It’s always worth having a hunt through your mortgage documentation before signing on the dotted line to make sure you’re aware of every single charge that you may have to pay.
If your mortgage includes a redemption fee, you have to pay it only if you decide to end your mortgage before the previously agreed-upon date (say if you’ve been making overpayments and have thereby shaved five years off your original 25-year term) or move to a different provider, but not usually at the end of your overall mortgage term.
Note that these fees differ from any early repayment charge (ERC), which is required when you choose to pay-off your mortgage or remortgage during the initial term (fixed or variable) when you have previously agreed to stay on the deal for a set time. So, if you do find a better rate elsewhere and decide to remortgage before your current deal is up, there may well be not just the ERC to pay but also other exit fees.
Most consumers are happy to pay fees if they are able to see a return, for example by way of a lower rate. This exit fee, which generally sits between £50 and £300, might therefore be a price worth paying for the chance to get a better mortgage deal elsewhere.
Unfortunately, not all redemption fees are fixed at the start of the mortgage, so they can change over the term of a customer's mortgage.
However, exit fees should still be carefully considered as part of the full mortgage package before you make a decision. Additionally, if you are looking to change providers, you’ll need to carefully consider if it will provide any financial benefit, as the savings from a lower rate can soon be eroded when faced with the combined cost of exit fees from your existing mortgage and set-up fees from your new provider.
For more general information on mortgage fees, see the ‘What fees do I need to pay when getting a mortgage?’ guide.
If you are only looking at keeping your mortgage with the same provider for a couple of years, a high exit fee certainly needs to be taken into account when shopping around. With enough providers offering either an exit fee of less than £100 or no fee at all, it is worth weighing up the impact of these lower fees, not just the interest rates.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.