What happens if you remortgage a fixed rate mortgage?

Say I am two years into a 5 year fixed rate mortgage. I sell my house and buy another one. From a legal point of view, I pay off my old mortgage and get a new one.

Do I get hit with a penalty for the early repayment of the mortgage?

Brendan

As far as I know you do because you repaying your mortgage and then drawing down a new one. Maybe if the new mortgage is with the same lender, they will let you off.

Depends on the lender but as Sunny says if you keep the business with them there is a better chance they will waive the penalty. First Active and Ulster Bank being the most lenient.
Otherwise you are liable for the penalty as per the t and c's.
Obviously it also depends on where fixed rates are now as against where they were when you fixed. If they have moved in the banks favour then in all likelihood there will not be a penalty, if they have moved in your favour then there will be a penalty.

Brendan said:

Say I am two years into a 5 year fixed rate mortgage. I sell my house and buy another one. From a legal point of view, I pay off my old mortgage and get a new one.

Do I get hit with a penalty for the early repayment of the mortgage?

Brendan

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I also have a fixed rate mortgage with about another 18mths left on it (First Active), recently enquired regarding penalties, they came back saying I would be charged 6mths interest but if I would going to get my new mortgage with them and more importantly draw the loan down straight away after repaying my current mortgage that they would usually not charge the penalties.

I once enquired of NIB what the redemption penalty would be if I cleared my three-year fixed rate mortgage, or paid a significant lump sum off it, and they replied that effectively they couldn't give me an answer until I actually went ahead and did it!

I'd already had a look at the T&Cs and there was some clause about the bank 'retaining the right to exercise discretion'. As the sum involved is not huge and I'm currently paying only 3.45% (until Feb 2008), I just left it.

I imagine it would be entirely a matter for negotiation, dependent on the amount of the mortgage to be cleared and the terms of the new mortgage to be taken out.

Cashstrapped said:

I also have a fixed rate mortgage with about another 18mths left on it (First Active), recently enquired regarding penalties, they came back saying I would be charged 6mths interest but if I would going to get my new mortgage with them and more importantly draw the loan down straight away after repaying my current mortgage that they would usually not charge the penalties.

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I could be wrong but I thought the regulator had told the banks that they are not allowed to impose penalties in that sort of way i.e. straight 6 mths penalty. I thought the only charge they were allowed to pass on was any funding cost that they incurred due to the early redemption. Also with rates rising at the moment, I would have thought there should be very little funding costs for the banks. It is really when people try to get out of fixed rates while rates are falling that these charges become significant.

Brendan

you can get a Portable mortgage with the same lender to prevent an interest penalty

you take the mortgage amount left, the term of the fixed rate left and the fixed rate you are on and transfer it to your new mortgage offer along with any new monies offered (ie higher mortgage amount) at whatever rates/terms are applicable today

not every lender does it, so you need to ask, also if you feel your existing lender isn't competitive, you may well have to pay the penalty to get a better mortgage elsewhere

DeirdreL

www.rea.ie

I should have stressed in my original question that I assumed that the person would stay with the original lender and was only "transferring" the mortgage.

I fully understand that if I terminate a fixed rate mortgage early, I must pay the penalty.

The Ombudsman ruling is not relevant. That was to do with a penalty for early termination of a non residential mortgage at a variable rate.

brendan

Brendan,

Here's the way around your problem.........

a) Sell property and clear existing mortgage(s)...

b) Draw down mortgage(s) for new property..

c) In part b) above, run with a new three year fixed rate mortage (at the original five year rate) and no penalty will arise... take the balance of what you need on whatever term/basis suits you (fixed variable etc etc)

Penalty only applies when you break a fixed rate mortage and bank can't offload at the original rate - in the above case you are ineffect honoring original agreement (just with a new loan).

Hope that helps...

Regards,


BM

Hi Brendan, I just enquired with NIB last week about same with a 5 year fixed rate(4.3%). No penalty as long as the new purchase follows the sale within 2-4 weeks and that the new mortgage is at least the outstanding value of the old one.