What are overhangs, or extended early repayment charges?

What are overhangs, or extended early repayment charges?

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An overhang or an extending redemption penalty is when the overpayment charge extends beyond the term of the special deal. Typically, in that particular situation, you might have a mortgage with a very cheap rate for two years, perhaps a rate as low as 2 or 2 1/2 percent. However, in exchange for you paying a really low rate for the initial two years, the mortgage lender will charge you their standard variable rate, or perhaps a very high rate linked to bank base rate for another four years, or in some cases another five years. During that time, if you redeem the mortgage or pay it back, you will then incur these early repayment charges. An extended early repayment charge means that the early repayment charge applies for a period beyond the term of the special deal.