Other things to consider

Redemption penalty

This is a charge made by your mortgage lender which is payable on certain types of loan - usually discounted or fixed interest rate loans. The charge is only applied if the loan is redeemed or part-redeemed within the specified early redemption charge period.

This is the quid-pro-quo of benefiting from the certainty conferred by fixed rates or the cheaper mortgage offered by discounted rates.

Some lenders lock you into a three or six month redemption charge - you've been warned, if someone is offering you an incredibly good interest rate below the rate prevailing on variable rate mortgages, the chances are they want something - your loyalty, and that could mean it'll cost you if you decide to move lender in future.

Mortgage indemnity premium

This is an insurance policy designed to protect the lender against loss in the event of you defaulting and ceasing to repay your mortgage. The policy is normally insisted on by the lender at the start of the loan, but it's usually the borrower who pays the premium! Some mortgage lenders have in the past been criticised for not explaining clearly enough that the policy is for the benefit of them. The premium payable is determined by the level of perceived risk to the home lender of you defaulting on the loan. In such circumstances, the lender would repossess and sell the property, possibly at a loss.

So for example, if the property you're buying is valued at (say) £100,000, the lender may demand you take out indemnity insurance if you're borrowing more than (say) 70% of its value. So a home loan of £80,000 representing 80% of the property's value will leave you with an indemnity premium to pay. If you choose to borrow £90,000 (90%) of the loan, there's deemed to be a greater risk to the lender of financial loss, so the premium payable by you will be higher. Similarly, if you're looking for a 100% mortgage (and are lucky enough to find one available on reasonable terms), the chances are you'll then have to pay a hefty indemnity premium! These premiums are based on the percentage you wish to borrow above a certain threshold set by the lender, usually 70% of value.

Indemnity premiums are typically charged at 5 to 8%. They can be paid as a 'one off' or sometimes added to the mortgage advance.

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