Products & costs
Early Repayment Charges (ERCs)
What is an Early Repayment Charge (ERC)?
A Stonehaven ERC is a charge that may be applied if you repay all or part of your mortgage before the end of the estimated term.
You may be familiar with ERC’s in connection with residential mortgages which have fixed or variable interest rates for a term of, say, 3 or 5 years where an ERC is applied if the mortgage is repaid before the end of the fixed term.
A Lifetime Mortgage is designed to have a term which runs for the entire remaining life of the borrower(s). As the life expectancy for every individual differs, the FSA requires Lifetime Mortgage lenders to calculate an estimated mortgage term using standardised life expectancy data. Stonehaven finances each Lifetime Mortgage based upon this estimated term and then fixes the interest rate for this term.
So as with a residential mortgage, if you decide to repay early, Stonehaven can face a considerable financing cost and in such circumstances would charge an ERC. There are, however, circumstances where this charge is not applied.
When does an ERC not apply to a Stonehaven Mortgage?
An Early Repayment charge is not applicable in the following circumstances:
- If you sell your property and transfer your mortgage to another property acceptable to Stonehaven
- If you (or the last surviving borrower) move into long-term care and the loan is then repaid usually through the sale of your property
- When repayment takes place after your death (or death of the last surviving borrower)
- If you repay after the end of the estimated term of the mortgage
In all cases a redemption fee will apply at repayment. This fee is currently £200.
When does an ERC apply to a Stonehaven Mortgage?
Assuming none of the prior circumstances exist when the early repayment takes place, Stonehaven will need to confirm if it faces a financing cost. To do this it compares the long-term Interest Rate quoted in the mortgage offer with the Financial Times UK 20 Year Gilt Yield Index quoted on the date of repayment. This index rate is published daily in the Financial Times.
If this index rate is lower than the long-term Interest Rate quoted in your offer letter you will be required to pay an early repayment charge. If, however, this rate is the same as or greater than the original rate, no ERC will apply.
The factors that are taken into account are:
- The loan balance
- The difference between the two long-term interest rates
- The number of years remaining on the estimated term
The details of how an ERC could be applied to your individual loan are included in your mortgage illustration and your financial adviser will be able to talk you through this if required.
In addition to any ERC a redemption fee, currently £200, will be charged at repayment.
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