If you want to pay off your mortgage, you must go through the mortgage redemption process. It’s time to repay your house loan, whether you’re moving, changing lenders, or have simply reached the natural conclusion of your mortgage term. Everything you need to know about mortgage redemption and the statement is included in this guide. You’ll discover how to calculate your mortgage redemption figure and fee.
What is Mortgage Redemption?
The process of totally paying off your mortgage is known as mortgage redemption. Redeeming your mortgage entails paying the outstanding capital, any interest owed, as well as any early repayment and/or administration fees associated with shutting down your mortgage account.
When you have entirely paid off your mortgage, you must redeem it. This could be since you:
- Have completed your mortgage term and made all of your instalments
- Are paying off your mortgage early with a big sum of cash?
- Are you remortgaging?
- You are relocating
A mortgage redemption statement is a document that your existing mortgage lender will supply upon request. It will tell you the entire amount you must spend to pay off your mortgage on a specific date.
If you’re paying off your mortgage, your mortgage redemption statement will show you how much money you’ll need to pay in total. It’s the amount you’ll need to borrow to pay off your existing mortgage if you’re re-mortgaging.
What takes place throughout the Mortgage Redemption Process?
Whether you’re paying off your mortgage or switching to a new lender, the process is slightly different. Both options are discussed further below.
Step #1 is to get in touch with your lender.
Your lender will either contact you or you will need to contact them, depending on your circumstances. If your contract is coming to an end, your lender will notify you well in advance that you will be moving to the SVR. However, if you’ve decided to re-mortgage or relocate, you’ll need to contact your lender and get a redemption statement (closing balance). This paper will tell you how much you still owe and any fees.
Step #2 is to contact your lawyer.
You’ll need your solicitor on hand whether you’re switching to a new mortgage or paying off your present one. They will prepare the mortgage deeds (if necessary), transfer the property title, and handle the money.
Step #3: Apply for a new mortgage.
If you switch lenders, you’ll have to go through the application process all over again. Make sure you have all of the paperwork you’ll need to establish your ability to pay.
You might begin by obtaining a mortgage in principle (MIP), which would assist you in getting offers accepted if you are moving. A MIP is effective for 60 to 90 days. You’ll then begin the application process, and if you use a broker, they’ll handle this for you.
Step #4: Entails the transfer of funds and legal documentation.
At this point in the process, your solicitor will take centre stage. If you’re relocating or switching lenders, they’ll collect the funds from your old lender and transfer them to your new one. They will also register the details of your new lender with the Land Registry and, if necessary, transfer the title documents.
It’s merely a matter of making your final payment, including any fees, if you’re paying off your mortgage. This is commonly done by internet banking, a CHAPS payment, in the branch, or even with a cheque. Your solicitor will organise the title deeds, which will either be maintained online with Land Registry or will be mailed to you by your lender.
What is a Mortgage Redemption Statement?
When it comes time to pay off your mortgage, you must receive a redemption statement from your lender. This will specify the exact amount your lender requires from you for you to fully repay your mortgage. It consists of your outstanding debt, any interest payable, and any applicable fees, as stated above.
Because the cost of repaying your mortgage changes daily, your mortgage redemption statement will usually include a daily interest figure as well. This is done so that your solicitor can adjust the actual amount based on the day of redemption.
When Is a Mortgage Redemption Statement Required?
A mortgage redemption statement will be required if you:
- Pay off your mortgage completely
- remortgage
- relocating
How Can I Obtain a Mortgage Redemption Statement?
The method of obtaining a mortgage redemption statement varies depending on whether you are paying off your mortgage (to become mortgage-free), remortgaging, or moving house. If you are paying off your mortgage, you must obtain a mortgage redemption statement from your lender.
Normally, you can accomplish this by:
- phone
- banking on the internet
- app for mobile
- in the branch
Your conveyancer will seek a redemption statement from your mortgage lender on your behalf if you are remortgaging or moving house.
How long does it take to receive a Mortgage Redemption Statement?
Within a few days, your mortgage lender should send you or your solicitor a redemption statement. Service standards vary by lender, however, the financial services authority recommends that a lender produce a redemption statement within 7 days of being requested. Delays in receiving a mortgage redemption statement can cause the conveyancing process to take longer. This can be a concern if you are moving or remortgaging your home.
How Does the Mortgage Repayment Process Work?
Depending on whether you are paying off your mortgage, remortgaging, or moving, the mortgage redemption process will be different. If you’re paying off your mortgage, you’ll need to do the following:
- Your lender should provide you with a mortgage redemption statement (as above).
- Make the last payment to your mortgage lender, including all applicable fees. Typically, you can accomplish this by internet banking, a CHAPS payment, in-branch, or by cheque.
- Your direct debit will be cancelled by the mortgage lender.
- The mortgage lender will update the Land Registry and remove its charge on your property from the register of title deeds.
How Does the Remortgaging or Moving Process Work?
If you’re remortgaging or moving, you’ll need to do the following steps:
- A mortgage redemption statement will be requested on your behalf by your remortgage solicitor.
- Apply for a new mortgage that will pay off your current one.
- Your new mortgage lender will send the cash to your conveyancer, who will use them to pay off your current mortgage. Any excess money (for example, if you remortgage for a higher sum than your current mortgage) will be paid to you through your conveyancer.
- The new mortgage will be registered with the Land Registry by your conveyancer.
What are the Mortgage Redemption Fees?
Your lender will charge you an administration fee when you redeem your mortgage. This is also known as a discharge fee, deeds fee, exit fee, or sealing fee.
The fee is often applied to the mortgage redemption figure and varies greatly amongst lenders. Some lenders charge no fee, while others charge between £50 and £300.
You may have to pay ‘early repayment charges in addition to a mortgage redemption fee. If you choose to redeem your mortgage before the end of a specified fixed, tracker, or reduced rate contract, you must pay these fees.
For example, if you took out a five-year fixed-rate mortgage and wish to pay it off after three years, you will most likely have to pay an early repayment charge.
How to Calculate Your Mortgage Redemption
Your mortgage redemption figure is made up of the following components:
- Your current mortgage principal balance
- Any interest that will be charged until the redemption date
- Any mortgage redemption fees (administrative costs associated with closing your mortgage)
- The penalties for early repayment
On request, your mortgage lender will give you an actual mortgage redemption figure.
Mortgage Redemption Calculator
Calculating your particular mortgage amount is complicated and will vary from borrower to borrower. You may be able to use an online mortgage redemption calculator provided by your lender to determine how much you owe.
What is the Redemption Right?
You (the mortgagor) have the legal right to redeem the mortgage on the date and in the manner specified in the mortgage agreement. If your contract requires you to redeem your mortgage on a specific date, you must legally do so on that date.
If you do not pay on the due date, you will often forfeit the land to your lender (the mortgagee) and will be sued in a contract for recovery of the amount. As a result, the legal right to redeem is restricted.
What is Redemption Equity?
You have a statutory right of redemption under the law, known as the ‘equity of redemption,’ which is distinct from the equitable right to redeem. Your lender becomes the legal owner of the land subject to your equitable interest upon the formation of the mortgage.
The equity of redemption is your equitable stake in the property, which is the sum of your rights to the land (including the right to redeem). As a result, the equity of redemption is a property interest that can be dealt with in the same way as any other equitable interest.
What are Early Repayment Fees?
If you want to pay off a fixed-term mortgage early, you’ll have to pay early repayment penalties. For instance, suppose you have a five-year fixed-rate mortgage and wish to redeem it after three years. The amount of the ERCs varies depending on the mortgage package. ERCs can cost thousands of pounds, so if you’re thinking about remortgaging or moving, you should factor this expense into your calculations.
If you pay your lender’s standard variable rate (SVR) or have a mortgage without ERCs, you will not be charged ERCs (for example, a lifetime tracker).
What is a Mortgage Exit Fee?
To offset the administrative costs of ending your mortgage account, most lenders levy a mortgage exit fee. This fee is also referred to as:
- Mortgage termination fee
- Mortgage redemption fee
- Administration fee for the redemption
- A fee for discharge
- Mortgage completion fee
- Fee for releasing deeds
- Administration fee for leaving
This fee will be specified on your initial mortgage documentation – though you may not have given it much thought when you took out your mortgage. It’s usually between £0 and £300.
Mortgage redemption insurance is a type of insurance that protects you against the loss of your home
Many people wish to ensure that their mortgage can be repaid in full if they die during the duration of the mortgage. There are plans available that allow you to take out life insurance on the lives of mortgage holders, intending to repay any outstanding mortgage balance if you die before the mortgage is paid off.
This is often a decreasing term life insurance policy on a repayment mortgage. The sum assured in this sort of contract reduces in line with the balance of your repayment mortgage and is intended to clear any outstanding debt.
Level-term assurance is more likely with an interest-only mortgage. This is since the outstanding balance of the mortgage does not decrease with time, and if you want to ensure that the mortgage is repaid in full upon death, a fixed amount of insurance is required.
Is it possible for me to cease paying mortgage insurance?
If you’ve paid off your mortgage, you should be able to terminate your mortgage payment protection insurance (MPPI). This may incur a fee, so consult with your provider to discuss your choices.
However, you may still want some coverage to cover other expenditures, such as household bills, if you are unable to work due to a sickness or accident. As a result, it may be worth exploring income protection or critical illness insurance instead.
What Happens to the Title Deeds After Mortgage Redemption?
What to do with house deeds once your mortgage is paid off is no longer a concern because, if you live in England or Wales, your title documents are usually maintained electronically with Land Registry.
When you have paid off your mortgage, your mortgage lender should remove its charge on the property from the Land Registry. This is usually possible to perform online.
If you want to double-check, you can get a copy of your property’s title record and title plan from the Land Registry. Each copy costs £3.00. Before obtaining these documents, give your lender two or three weeks to erase the charge.
If your mortgage lender has your property’s paper deeds, it should return them to you.
Many people don’t know where their property’s title deeds are – they could still be in the custody of a former owner (there’s no requirement to send them over when you sell), or the solicitor you employed to purchase the property.
Mortgage Redemption FAQs
How much does it cost to redeem a mortgage?
Typically, 1-5 percent of the early payback amount. This is a fee paid to your lender when you pay off your mortgage, even if you do not pay it off early.
Can you sell house while still paying mortgage?
The quick answer is yes. You can sell your house even if it still has a mortgage balance on it. When you sell your property, you can utilise the equity to pay down the loan balance as well as your portion of any closing fees.
Is it good to make mortgage overpayments?
You don’t merely get the benefit of paying interest on a reduced amount of debt if you overpay your mortgage. Overpayment also causes your loan-to-value ratio to deteriorate faster. And if your LTV falls, you may be able to get a better bargain on remortgaging than if you hadn’t overpaid.
