Almost all fixed and discount interest deals come with an early redemption penalty attached.

You will have to pay this 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 youve come into the money to clear your mortgage entirely.

It can cost anything from a few hundred to several thousand pounds.

 

There are two types of penalty.

Penalties that last for the fixed or discount period

You are unlikely to find a competitive fixed or discount deal that doesn’t come with a penalty.

On the best deals this lasts for exactly the length of the special deal which could 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.

How to avoid them: You are unlikely to get a good mortgage deal without a penalty attached, so the only way to avoid paying is to stick with it until the fixed or discount period ends.

If you think you might want out before this, consider taking a shorter deal say, for two years rather than one that lasts longer.

 

Extended redemption penalties

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

This can last for several years after the cheap fixed or discount interest deal has ended, tying you into paying the lender’s far higher standard variable rate.

 

If you get stuck on a deal like this, you can end up paying far more over the tie-in period than you would if you had taken a deal without an extended tie-in that charged a higher initial interest rate.

 

How to avoid them: Always check if the mortgage you are considering comes with an extended tie-in.

If it does, think long and hard before you sign up. No matter how attractive the initial fixed or discount deal might seem, loans like this are rarely worth having.