Equity Of Redemption

Equity Of Redemption

The term ‘equity of redemption’ is an important right for anyone who takes out a loan.

What does Equity Of Redemption mean?

Equity Of Redemption confers the legal to redeem mortgage loan at any time, irrespective of any clauses contained in the contract that might say otherwise. This right applies to anyone with a mortgage or any other type of loan, and has been confirmed by common law.

Why is this right important?

Equity Of Redemption is important to anyone with a mortgage because the majority of mortgages are paid off before the end of the term; homeowners often move home to a larger house and need another mortgage, or downsize to a smaller house whereby they can pay off their mortgage.  These activities may take place several times in a person’s life.

Mortgage Redemption Conditions

Mortgage products have become increasingly sophisticated and complex in order to satisfy the ever-changing requirements of the mortgage marketplace and, just as the borrower has a right to repay at any time, the lender also has a right to impose reasonable fees and charges. It is therefore common for lenders to include conditions of redemption in their mortgage deeds such as early repayment charges (which are a feature of in fixed interest rate products)

The Mortgages and Home Finance: Conduct of Business sourcebook rules require lenders to be clear about any fees and charges that may be imposed by including them in the key features illustration for all types of regulated mortgage contract.  It is incumbent on lenders to ensure that prospective customers are clearly alerted to any potential charges.

Were a lender to include a condition in the mortgage that would make early repayment difficult, this condition would be disregarded in a court of law as it would be construed as an act to prevent equity of redemption.