Redemption Penalties

Put simply, a mortgage redemption penalty is an additional payment a borrower may have to make in the event of remortgaging or early repayment of said mortgage.

A vast majority of mortgages sold before 1999 will have some kind of redemption penalties attached to them, often for a small but definitely significant percentage of the total mortgage - these penalties can therefore be of considerable importance when thinking about remortgaging for financial benefit.

Basically, redemption penalties come in one of two forms: either a standard penalty or what is known as an extended redemption penalty. In the case of standard penalties, the period of penalty only lasts as long as the mortgage's special rate offer so should be suitable for most, unless your mortgage is fixed rate. Extended (also known as overhanging) penalties can prove very costly as they are charged regardless of when you switch, therefore any mortgage which has them is best avoided.

For those considering remortgaging, one of the first things to check is whether your present mortgage lender charges redemption fees. If they do, then you will need to weigh up the money saved by switching mortgages against the penalties levied to see whether the change is worth it.

Some mortgages have shorter term penalty periods after which you can remortgage at will, so sometimes a little patience can pay dividends, literally. Before contemplating switching lenders, it can often be worth calling your present lenders' bluff by threatening to accept the redemption penalties and remortgage anyway - you could find they are more inclined to offer you a more satisfactory deal.

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