Unless you agree to pay your mortgage lender’s standard variable rate of interest which is expensive and unnecessary your mortgage deal is likely to come with an early redemption penalty attached.

This applies almost universally to fixed and discount interest deals, which are cheaper than standard variable rate loans.

A Redemption is when your mortgage lender makes you pay it if you want to get out of the deal before the agreed end date whether it’s because you want to move to a cheaper lender or you’ve come into the money to clear your mortgage entirely.

 

Why do they apply a penalty?

Lenders use these penalties to tie you to them, so your payments continue to boost their profits.

And it works because they set them high enough so that most people would rather stay put than pay up.

 

How long will it last?

The penalty may apply for the period of the fixed or discount deal. This might be anything from six months to five or ten years, or even longer.

After that, you will be free to pay off your loan without penalty.

But some mortgages come with an extended redemption penalty, also known as an extended tie-in.

This could last for several years after the cheap deal has ended, tying you to the lender’s far higher standard variable rate.

 

How much will it be?

The early redemption penalty might be several months interest or a percentage of your loan. Either way, it could cost you several thousand pounds.

 

Can I avoid it?

Yes. To find out how, read How to avoid paying an early redemption penalty.

You might also want to read about higher-lending fees: See Higher-lending fees explained.