What exactly are redemption penalties?

Some mortgage lenders will penalise you if you decide to repay your mortgage early and these are known as redemption penalties.

Fixed rate mortgages all charge redemption penalties for the duration of the initial period, and once that period is over (1-5 years) you are usually free to seek out another mortgage lender without incurring any redemption penalties. Check out exactly where you stand before getting any remortgage as some mortgage lenders charge what is known as an 'overhanging' redemption penalty. This is a redemption penalty that applies even after the introductory period is over.

The redemption penalty is usually calculated as a percentage of the mortgage total. This could be 1% - 5% of the total loan, depending on what stage of the mortgage term you are at when you make the decision to repay the mortgage.

If you want to avoid redemption penalties completely then think about getting a flexible, current account or offset mortgage. They allow you to end your mortgage agreement whenever you want, though this may be at the expense of slightly higher interest rates.