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An early redemption penalty is a type of penalty that you will need to pay if you satisfy the lending, such as a mortgage or loan, before the term is up. When applying for credit, it makes sense to check out the early redemption clause. This way you can see how much money you may be responsible for if ever you decide to pay off the loan or mortgage before the end of the agreed term. When you are gathering information related to this topic it is good to start with some definitions. An arrangement fee is something that is passed on to you by a lender or broker if you take out borrowing such as a loan or mortgage. It is to cover their costs in arranging the lending. A number of loan companies will present this without charging to encourage new customers. A tie in period on a mortgage indicates you are legally tied to the mortgage provider for a predetermined amount of time. Therefore, the mortgage provider will offer you a great deal, like a fixed rate mortgage for two years. Though you could be linked to the mortgage provider for a predetermined period of time. after that, for instance a year where you will have to pay their SVR (standard variable rate). This is an opportunity for mortgage companies to recuperate the funds the gave up in letting you have a great deal, for two years. If you wish to switch mortgage companies while still in the 'tie in' term, it will be necessary for you to pay a financial penalty which could amount to thousands of pounds. When looking at borrowing money, you'll no doubt be aware of the old saying 'Shop around for the best deal'. However, while shopping around is the best thing you can do to find the right finance deal, don't just look at the annual percentage rate (APR) on the loan - otherwise you could end up being ripped off by an early redemption penalty. An early redemption charge (ERC) has many different names - early redemption clause; early repayment penalty; early termination penalty; early redemption fee; financial penalty; and, redemption charge/penalty. However, what it is remains the same. Basically, should you repay your loan early, you may find that you have to pay an early repayment penalty. If you have a personal loan, the charge may be typically one or two month's worth of interest. However, it is for a mortgage, this figure could literally run in to thousands of pounds, depending on your mortgage agreement. With the latter, many mortgage companies offer special deals for a set period of your mortgage - for example, for the first two years. So for two years, you are getting a really good deal, probably at discounted rates. However, when it gets to year three and your lender wacks up their interest rates, naturally you will want to look around for another mortgage deal. However, if you look at your mortgage agreement, you may see that you are tied to the lender for, say, four years. So, in that way, he can make a lot of his money back from you in years three and four. If you decide to switch to a better deal in year three or four, then you may face an early redemption penalty. So, how can you stop getting ripped off by lenders charging this fee? First of all, don't take out any loan agreement until you have thoroughly checked out whether there is an early redemption fee. Any early termination fees should be explained to you before you take out a mortgage. If you are not made aware of any such fees before you agree to the loan, then you should seek legal advice as this is miss-selling . However, if you are made aware of the charge and it seems like a reasonable fee and you are happy with the rest of the deal, then go for it. If it doesn't look right or the charges look a bit unrealistic, then do not proceed. There are plenty of lenders out there who do give personal loans and mortgages without any 'tie-ins'. So, shop around.
Article Source: http://www.rightarticle.com
James Miller writes on topics about secured self declare loan, remortgage limits and tenant loan broker.
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