Mortgage Outfits Challenged On Exit Fees

Mortgage Outfits Challenged on​ Exit Fees
You might have heard of​ an​ exit fee .​
It is​ the​ charge that the​ mortgage lender makes a​ person pay if​ they want to​ get out of​ a​ money borrowing agreement before the​ end of​ the​ term .​
Another name for it​ is​ a​ redemption penalty.
Well mortgage lenders are making large amounts of​ money on​ these exit fees at​ the​ borrower’s expense .​
In fact,​ as​ more and more people have tried to​ ditch their mortgage when a​ better deal comes along in​ the​ last five years,​ the​ money lenders have been increasing these exit fees by up to​ an​ unbelievable 450% .​
If you​ think that’s a​ staggering fact,​ consider this: in​ some cases they do not even mention it​ to​ the​ borrower.
The Financial Services Authority (FSA),​ however,​ is​ taking a​ stand.
What it​ plans to​ do is​ strike up an​ agreement with money lenders during 2018 in​ an​ effort to​ make these outfits quote the​ exit fees at​ the​ beginning of​ any mortgage agreement .​
The price someone pays to​ get out of​ the​ mortgage will then be fixed for that mortgage term.
That is,​ the​ cost of​ exiting an​ agreement will be the​ same if​ you​ get out of​ a​ mortgage after three years or​ after eight years.
It is​ actually the​ case that when someone enters a​ mortgage,​ the​ lender is​ legally required to​ say the​ exact costs that will be incurred by leaving the​ mortgage early.
But the​ problem is​ that there is​ a​ loophole in​ the​ law which allows organisations to​ increase the​ exit fee during that agreement without telling the​ person borrowing the​ money.
Take Cheltenham & Gloucester for an​ example .​
Here’s a​ case where the​ company’s exit fee has rocketed from £50 to​ more than four times that price - £225 .​
That has happened in​ just a​ few years.
Another company,​ Woolwich,​ have pushed up the​ fee from £95 to​ £275.
You could argue that the​ lenders are doing this as​ retaliation against people who regularly swap their mortgages in​ an​ effort to​ save money on​ interest rates .​
The money is​ still not enough to​ stop these people moving their money around,​ but it​ means the​ money lenders get a​ nice monetary compensation at​ the​ end of​ it.
It takes this talk of​ exit fees to​ focus one’s mind about carrying out the​ necessary research when it​ comes to​ taking out a​ mortgage in​ the​ first place.
There might be some people out there who gloss over the​ fine print and miss information about many of​ the​ costs,​ changes and incentives connected to​ the​ agreement.
Do not just consider the​ interest rate – you​ need to​ look at​ everything.
Here are two very similar deals with the​ companies Northern Rock and Halifax.
You take out a​ repayment mortgage with both companies for 25 years,​ both based on​ a​ two-year fixed rate .​
After two years you​ exit both of​ the​ deals.
Northern Rock has its interest rates at​ 4.19% .​
The arrangement fee is​ 1.5% and the​ exit fee is​ £250 with no incentives.
With Halifax you​ pay an​ interest rate of​ 4.39%,​ a​ £499 arrangement fee along with a​ £175 exit fee .​
The incentive you​ have with the​ deal is​ free valuation and solicitors fees.
Even without any incentives,​ the​ Halifax deal is​ much cheaper – by £807 – over two years,​ despite the​ fact that it​ has higher interest rates.
The Northern Rock mortgage is​ going to​ be £14,​671 and the​ Halifax mortgage is​ £13,​864.
So when you​ take out a​ mortgage,​ do your homework .​
While the​ rules around exit fees may be about to​ change which will put an​ end to​ the​ game that money lenders can play at​ your expense with price hikes,​ if​ you​ put yourself in​ a​ position where you​ do not want to​ pull out of​ your mortgage because you​ have the​ best deal,​ exit fees will never have to​ be something you​ should worry about .​
And the​ money lenders will not be making a​ nice little sum of​ money when you​ leave the​ deal at​ your expense.

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