Early Repayment Charges – one of the main drawbacks to longer fixed-term mortgages. What if this wasn’t the case? What if you could have the security of a fixed rate and the option to exit early without incurring charges? Buy to Let consultant, Charlie Potter, explains…
What are short Early Repayment Charge Fixed-Rate Mortgages?
Traditionally, fixed-rate mortgage terms include Early Repayment Charges (ERCs) which must be paid if you wish to terminate the mortgage early. The ERC is usually the same length as the fixed term. The early repayment charge for ending the mortgage early is normally a set percentage of the loan amount that is still to be repaid.
For example, if you had £300,000 left to pay on your mortgage and 2 years left on your 5-year fixed initial term, you may have to pay 2% of the balance, so £6000, to exit the mortgage. Of course, this percentage will vary depending on your lender and your specific mortgage.
New to the market, we have access to products that do not charge ERCs on the last 2 years of the 5-year initial mortgage term.
What are the benefits?
Flexibility. While you may want to fix the interest rate on your buy to let for a few years, ensuring consistency and peace of mind, your circumstances may change.
Whether you’re a first-time landlord or have years of experience, these products are great if you’re looking to invest in another property down the line but want a secure rate until you’re ready. For example, if you wanted to raise additional funds through a remortgage of your existing buy to let, in order to increase your buy to let portfolio, you could do this after just 3 years rather than waiting the full 5-year term, without incurring additional charges.
Similarly, if you wanted to sell your buy to let property, you would be able to do so earlier, without having to pay exit fees.
These new mortgages are available to both properties held in the individual name and by Limited Companies, on either capital and interest or interest-only basis.
So what's the catch?
As with everything in life, you usually don't get something for free... Due to the flexibility of these products, the rates start from 3.30% at 65% LTV, which are higher than a typical fixed-rate product.
So, you will need to weigh up whether the benefit of being able to secure a fixed rate for 5 years and be able to change your mind after 3, without having to pay out to the lender is worth paying extra for.
If you’d like more information on these products and to discuss whether they could help your buy to let investments, please do not hesitate to contact me, Charlie Potter, on 01732 471648 or 07814072193
Alternatively, you can email me firstname.lastname@example.org.
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