Early Repayment Charges - what they are and how they work
An Early Repayment Charge (ERC) may be due if you pay back all, or sometimes part, of your loan (over and above your normal monthly payments) within a particular date of starting the mortgage. Most of our residential mortgages, however, allow you to repay up to 10% of the original loan each year, with no ERC. Any charge that is made is calculated as a percentage.
For example, if you borrow £100,000 and you have an ERC of 3% for four years but a 10% ERC allowance:
- you could pay up to £10,000 per year over and above your normal monthly payments in each of the first four years without any charge
- if you were to pay more than this in any one year, say £15,000, then you would pay a charge of 3% on the amount you have paid over your allowance. In this case 3% of £5,000, which is £150
- if you pay your mortgage in full within the ERC period there will be a charge of 3% of the balance of the mortgage at the date of redemption. Assuming in this case your balance was the same as your original loan when you repay your mortgage (£100,000), you would be charged £3,000
- if the mortgage is repaid in full after the ERC period, only interest up to the end of the month of redemption will be payable.
Remember to check the 'Our Mortgage Products' section for ERC details relating to the mortgage you choose.
If you move house
Skipton mortgage products are usually 'portable' - so you can transfer your product to the mortgage on your new home, and you will not be charged an ERC for that product as long as you complete your new mortgage and repay your old one at the same time. (If the balance of the loan on that product is reduced when you move you may have to pay an ERC on the reduction). Of course, both you and your new property must fulfil Skipton's lending criteria at the time of your move in order for a new mortgage to be approved. Depending on the loan to value of your new property, you may have to pay a higher lending charge at that time.
APRs
APR stands for Annual Percentage Rate which is the overall cost of your mortgage expressed in a standardised way. This helps you compare the cost of different loans over the whole term. It may seem obvious, but a loan with a lower APR is cheaper overall than a loan with a higher APR.
An APR for each product is shown in the 'Our Mortgage Products' to help explain the total cost for comparison purposes. However, your Key Facts Illustration (KFI) will include the APR specific to your own loan requirements, which may differ slightly from the APR shown in the 'Mortgage Rate and Features Guide'.
The APR in the KFI takes account, amongst other things, of:
- the amount borrowed and the term of the loan
- the interest rate you pay (including the rate you pay after any initial product period)
- charges which you have to pay, such as application/completion fees, valuation fees and discharge fees
- when and how often you have to pay the interest and charges
- any Higher Lending Charge.
It is important to be aware that APRs are only a snapshot of the total cost of a loan at a particular time. All the known information is included in the calculation, such as the current levels of interest rates and charges and any planned changes such as the ending of incentive periods, and then worked out over the term.
What APRs cannot predict are changes in the Residential Standard Variable Rate (RSVR) throughout the term and the effect of any other charges that might occur, such as overpayments.
Whilst using APRs to compare the cost of different loans, don't forget to consider how much you will have to pay each month and whether you can afford that amount.