Should there be restrictions on the early repayment of mortgages?

Brendan Burgess

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The Irish government has to transpose the Mortgage Credit Directive into Irish law. The Department of Finance has a consultation process on some issues where the government has discretion. This is one of the most important areas and I am keen to make a submission which would reflect all sides of the argument.




Discretion 24 – Early repayment of loans (Article 25)

The Directive ensures the right of the consumers to repay the loan early if they so wish. If consumers do repay early they will be entitled to a reduction in the total cost of the credit. This reduction would consist of the interest and the costs that would have accrued over the remaining duration of the contract.

The following discretions may be applied to the right to repay early:

Ireland may provide that the exercise of the right to repay early is subject to certain conditions. Such conditions may include time limitations on the exercise of the right, a different treatment depending on the type of the borrowing rate or depending on the moment the consumer exercises the right, or restrictions with regard to the circumstances under which the right may be exercised.

Consultation Question 24(a): Should Ireland set conditions on early repayment? If yes, please provide suggestions and your reasons for them.
Consultation Question 24(b): Should Ireland provide that creditors can charge for early repayment subject to the restrictions outlined above? If so, why?

Where the early repayment falls within a period for which the borrowing rate is fixed, Ireland may provide that the exercise of the right to repay early is subject to the existence of a legitimate interest on the part of the consumer.

Consultation Question 24(c): Do you think Ireland should adopt the above discretion? If so, why?
 
It seems to me that the current situation is fine.

People can repay variable rate loans at any time, without penalty.

If the borrower has a fixed rate loan, the lender can charge a fee for breaking early, which seems fair to me.

The only issue where there could be an improvement is where someone is trading up and they have a fixed rate loan. They should be able to transfer the loan to the new property, subject to the normal lending criteria. But I think that this is an issue for the lenders and not for the legislation.
 
Could there be any advantage to consumers in allowing early repayment penalties on variable rate loans?

In the UK, lenders often give loans with discounts for the first few years, but charge an early repayment penalty. I don't like introductory discounts, so leave the current system as is.
 
Could there be any advantage to consumers in allowing early repayment penalties on variable rate loans?
Can't see how this could be in the consumers interest in any way, shape or form. In the case of fixed rate, there's a logic to it - but not in the case of variable rate

In the UK, lenders often give loans with discounts for the first few years, but charge an early repayment penalty. I don't like introductory discounts, so leave the current system as is.
Surely introductory discounts only serve to cloud the consumers assessment of what the actual cost of the loan is - particularly if that also involves penalty payments for early loan payment?
 
Surely introductory discounts only serve to cloud the consumers assessment of what the actual cost of the loan is - particularly if that also involves penalty payments for early loan payment?

Agree with this, it's hard enough for some people to understand credit. Let's keep it simple. I note now in the UK payday loans are a total nightmare, something I wrote about on here a couple of years ago as the next big scandal.

People should be allowed repay variable loans early with no sanction, and a clear cut penalty amount for repaying fixed loans early is also fine. As is the banks discretion to waive the penalty, in cases where you are trading up or are a good customer etc.
 
Hi Sid

I don't think that there is any advantage, but it's worth asking the question. Sometimes, a restriction which favours some consumers, hurts others.
 
Hi Sid

I don't think that there is any advantage, but it's worth asking the question. Sometimes, a restriction which favours some consumers, hurts others.

No worries, Brendan. If they are likely to turn around here and make the same mistake as in the UK (i.e. introductory offers together with early repayment penalties), then i agree completely that the subject is worthy of discussion.
 
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