A mortgage redemption certificate, which is also known as a mortgage redemption statement, is issued by the lender in response to a mortgage transaction. It is an official document and plays an important role in the mortgage process when a house is being sold with a mortgage still in progress. The term and document are both used in the U.K., although there are certain American equivalent processes.
The mortgage redemption statement shows how much money is left to be paid on a mortgage, and how the lender specifically expects those payments to be made, especially in terms of time and amount. The statement is binding on the entity to whom it is issued, and stands as the lender's official word on the progress of the mortgage.
The mortgage redemption certificate is often necessary when a property is being sold. The seller who owes the mortgage must prove to the buyer that the mortgage on the property will be paid off when the transaction is complete. Sometimes the buyer takes over the mortgage as well as part of the transaction. Either way, a legal document must be created showing exactly how much money is left to be paid on the mortgage, to be used in the transaction contract.
Typically the solicitor (or agent) of the borrower (who is also the seller of the property) must make a formal request to the lender for a mortgage redemption statement. Most banks have a formulaic letter that can be filled out to make such a request. The solicitor should specify whether the statement is needed only for informational purposes, or whether it is part of a transaction. Generally, the lender may suspend payment collection if it is part of a transaction process.
Early Repayment Charges
Some lenders expect to receive payments throughout the life of the mortgage. Depending on the contract, there may be an early repayment charge for paying off the entire mortgage early as a part of the transaction. The mortgage redemption statement should also show any early repayment charges. If these charges are too high, the borrower may refuse to sell the property, which is a reason some mortgage redemption statements are used for informational purposes only.
A mortgage redemption statement should be received at the beginning of the property transaction so that both the seller and the buyer know the remainder of the loan to be paid off and how it will be done. This is also useful in case there are any unexpected requirements from the lender that the seller was not previously aware of.
Tyler Lacoma has worked as a writer and editor for several years after graduating from George Fox University with a degree in business management and writing/literature. He works on business and technology topics for clients such as Obsessable, EBSCO, Drop.io, The TAC Group, Anaxos, Dynamic Page Solutions and others, specializing in ecology, marketing and modern trends.