Mortgage Redemption

[pneal]

In 2006 my father took out an 'Interest Only' mortgage with Commercial First, fixed for the life of the mortgage at 5 percent about the 3 month LIBOR rate.

At the time he unfortunately didn't take too much notice of the terms and conditions of the mortgage, which when I later explored them in detail myself stated that a three percent penalty payment would be made for any partial or full redemption of the mortgage within the first three years, reducing after that to one percent for the remaining life of the mortgage.

By the time I had discovered this (I had to ask them to send out duplicate copies) I had arranged a re-mortgage for one of the three flats. As rates were climbing at the time (he was paying over 10 percent on 500k) I proceeded with the re-mortgage. Due to other complications with Commercial First I have been unable to re-mortgage the remaining two flats.

My question is this: as there were no special deals attached to the mortgage how is the redemption penalty justified? Am I right in thinking that it doesn't? Any comments or advice would be appreciated.

 

[mf1]

This is an Irish site but your question appears to be UK related.

On a very basic note, your father entered into a legally binding agreement. Presumably he had legal advice and did it freely. On what basis should the legally binding agreement be set aside?

mf

 

[pneal]

Sorry I didn't realise this was an Irish site, what with it being a .com.

I appreciate the logic of your post and I would normally agree with you that he simply made a poor decision and should have read the contract more clearly.

Under English Tort law contracts have to be fair on both parties and one party cannot place unfair terms on amending or exiting the contract unless they are to compensate them for a measurable loss.

So I was wondering if anyone else had also encountered this problem and had any advice with dealing with it efficiently.