What?

Also known as discharge fee, a redemption fee, a deeds fee or a sealing fee.
 
You may want to pay off your loan because you want to switch to a different mortgage provider or because you now have the money to pay off your loan in its entirety.
 
However, when you want to get out of your loan within a predefined period your mortgage lender may charge an early redemption penalty.
 

 
These nearly always apply when you take out a fixed or a discount interest deal. These are special interest rate offers that apply for a certain duration of your mortgage, such as 5 years, after which you are automatically switched to the lenders standard variable rate.
 
Early redemption fees will not apply when you take out the lender's standard variable rate of interest from the start. However, this means you miss out on good deals and this will almost always be a more expensive option.
 
Why?

The fee is mainly there to help tie you to the lender and give you an incentive not to move your loan to another company. They are usually fairly high for this reason. 

The early redemption is likely to be applicable for the entire duration of your fixed or discount rate deal.
 
However, the mortgage provider may also include an extended redemption penalty, (also called an extended tie-in). This may extend for several years after your fixed or discount period has ended.
 
This has important implications as it could keep you tied to the lender even after you are switched over to the lender’s standard variable rate. As the lender’s standard variable rate is likely to be uncompetitive this could be expensive making it very important to check the duration of any early/extended redemption penalty.
 
After the duration of your early redemption penalty and any extended redemption penalty you can pay off your entire loan without facing a penalty.
 
How Much?
 
The early/extended redemption fee is likely to be either a percentage of your total loan or the sum of several months interest. It could therefore range from several hundred to several thousand pounds – a deliberately high figure to keep you tied to your mortgage provider.
 
It is very rare to find a good fixed or discount deal that does not include an early redemption penalty. Therefore to avoid paying the fee you should try to ensure that you will not need to repay the mortgage before the end of your deal.
 
If you believe there is a good chance you will need to pay off your mortgage early you should ensure that the length of your deal matches this requirement - for example taking a two year fixed deal rather than a five year fixed deal.
 
While it is very difficult to find a good deal without an early redemption penalty there are lots of deals out there without an extended redemption penalty and the best deal for you will usually not include an extended redemption penalty.
 
Extended redemption tie-ins can keep you trapped on the lenders standard variable and therefore paying more than you need to. It could even be worth paying a higher rate initially to avoid being trapped in an expensive deal later on.
 
Therefore no matter how attractive the initial interest rate it is very important to find out how long any early/extended redemption penalty lasts for and (how long you may be stuck on an uncompetitive rate) taking this into consideration when deciding on your loan.