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Mortgage Redemption: All Your Questions Answered In This Q&A

Posted 18 May 2023 by Helen Christie

If you're moving, remortgaging or your mortgage is ending, here's what you need to know about mortgage redemption.

If you're looking to repay your mortgage, you will go through the mortgage redemption process. Whether you're moving home, switching lender, or you have simply reached the natural end of your mortgage term, it's time to repay your home loan.

Our guide tells you everything you need to know about mortgage redemption.

What is mortgage redemption?

When the time comes for you to repay the balance of your home loan, this is 'mortgage redemption'. The process involves you paying off the full outstanding balance of your mortgage, and any other amounts added to it.

Mortgage redemption may occur if:

  • you are moving home
  • you are switching lender (remortgaging)
  • you have a lump sum available and you want to repay what you owe
  • you have come to the end of your mortgage term and you want to repay the balance

The mortgage redemption process explained

At the point you wish to repay your mortgage, you will need to approach your lender in order to obtain a settlement figure representing the exact amount that you owe. You can typically do this by calling or writing to your lender, or by requesting this figure in a branch.

If you are moving home or remortgaging then your solicitor will generally handle the redemption of your existing mortgage. If you're simply paying your mortgage off without moving home or lender, you may deal directly with your lender.

Redemption occurs when your existing lender receives the amount needed to pay off the mortgage in full.

What is a mortgage redemption fee?

When you redeem your mortgage, your lender will charge you an administration fee for this. This is sometimes called a discharge fee, a deeds fee, an exit fee or a sealing fee.

The fee will typically be added to the redemption figure and can vary significantly between lenders. Some lenders don't charge a fee at all, while others charge between £50 and £300.

As well as a mortgage redemption fee, you may also have to pay 'early repayment charges'. These charges apply if you want to redeem your mortgage before the end of a specified fixed, tracker or discounted rate product.

For example, if you took out a five-year fixed rate and you want to repay your mortgage after three years, you are likely to pay an early repayment charge. You can find out more information about early repayment charges, what they are, and when they are applied.

Model house and hand and calculatorHow to work out your mortgage redemption figure

Your mortgage redemption figure consists of:

  • your current mortgage balance
  • any interest that will be charge until the date of redemption
  • any mortgage redemption fees (admin fees for closing your mortgage
  • any early repayment charges

Your mortgage lender will provide you with an exact mortgage redemption figure on request.

Mortgage redemption calculator

Working out your specific mortgage amount is complex and will differ from borrower to borrower. Your lender may have an online mortgage redemption calculator that you can access in order to work out exactly how much you owe.

What is a redemption statement?

When you want to pay off your mortgage, you will need to request a redemption statement from your lender. This will outline the exact amount that your lender requires from you in order that you can fully repay your mortgage.

As above, it consists of your outstanding balance, any interest due, and any fees and charges that are applicable.

The cost of paying back your mortgage changes on a daily basis and so your mortgage redemption statement will generally also include a daily interest figure. This is so that your solicitor can amend the exact amount depending on the specific day of redemption.

Mortgage redemption statements are usually only valid for around four weeks. If redemption is delayed beyond this time a new statement will have to be requested.

How long does a mortgage redemption statement take?

Your mortgage lender should provide a redemption statement to you or your solicitor within a matter of a few days. Service standards differ from lender to lender although he financial services regulator suggests that a lender should provide a redemption statement within seven days of it being requested.

Delays in obtaining a mortgage redemption statement can slow up the conveyancing process. This can be a problem if you are moving home or your are remortgaging.

What is the right of redemption?

Under the law, you (the mortgagor) can redeem the mortgage on the date and in the manner required under the mortgage agreement. If your contract stipulates that your mortgage must be redeemed on a specified date, you must legally redeem the mortgage on that day.

If you do not pay on the contractual date, you would traditionally forfeit the land to your lender (the mortgagee) and be sued in contract for repayment of the debt. Therefore, the legal right to redeem is limited.

What is equity of redemption?

Under the law you have a statutory right of redemption – known as the ‘equity of redemption’ – which is distinguishable from the equitable right to redeem. On creation of the mortgage, your lender becomes the legal owner of the land subject to your equitable interest.

The equity of redemption is your equitable interest in the property which is the sum total of your rights in relation to the land (including the right to redeem). The equity of redemption is therefore an interest in land and can be dealt with like any other equitable interest.

What is mortgage redemption insurance?

Many people want to ensure that their mortgage can be redeemed in full in the event of their death during the mortgage term. There are policies available which allow you to take out insurance on the life of the mortgage holders which is designed to repay any outstanding mortgage balance if you die before the mortgage is paid off.

On a repayment mortgage, this is typically a decreasing term life insurance policy. Under this type of contract, the sum assured decreases in line with the balance of your repayment mortgage and is designed to clear any outstanding balance.

On an interest-only mortgage, you are more likely to have level term assurance. This is because the outstanding balance of the mortgage does not decrease, and if you want to ensure the mortgage is redeemed in full on death, a fixed amount of cover is needed.

 

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