If you repay your mortgage early or make an overpayment that’s more than your allowance, an early repayment charge (“ERC” if you’re in a rush) may be due.
Essentially, this means you’re being penalised for breaking the deal early, so the lender uses the fee to recoup some of the interest it’s losing.
The charge is usually a percentage of the outstanding mortgage debt, which often reduces the longer you stay with it.
Check your mortgage offer for any details of ERCs that you might need to pay.
Types of mortgage with early repayment charges
Early repayment charges can apply to all kinds of mortgages, whether they’re fixed-rate mortgages or variable-rate mortgages, such as tracker and discount deals.
It’s a common misconception that variable-rate mortgages don’t have ERCs, but that’s not really true.
The only mortgages that don’t typically have early repayment charges are standard variable rate (SVR) products, which your lender will usually move you onto if you don’t switch when a deal on another sort of mortgage comes to an end.
How to find out if ERCs apply to your mortgage
Check your original mortgage offer to find out about any ERCs as lenders are obliged to clearly state this in the offer.
Also remember that unless your mortgage allows you to make overpayments penalty-free, ERCs will also apply to overpayments.
Another way to find out is to contact your lender, who’ll be able to tell you what ERCs apply to your mortgage and when they’ll cease to apply.
How much are early repayment charges?
ERCs vary from product to product, but are typically between 1% and 5% of the mortgage.
Sometimes they will reduce over time. For instance, you might take a five-year deal with ERCs of 5% in year one, falling to 1% in year five of the deal, which could be a significant cost to you.
The Financial Conduct Authority’s guidelines state that ERCs in mortgage contracts must be expressed as a cash value and must be a reasonable pre-estimate of the costs the lender would incur if the customer repaid early.
These costs must be disclosed in the mortgage offer documents before the mortgage is taken out, so make sure you check before you commit.
ERCs on overpayments
As mentioned above, unless your mortgage allows you to make overpayments penalty-free, ERCs also apply to overpayments.
Some mortgages allow you to overpay a set amount of the outstanding balance each year, typically 10%. But if you exceed this, ERCs will apply to the extra amount overpaid.
For instance, consider a £100,000 mortgage with ERCs of 2% that allows penalty-free overpayments of 10% per annum.
If you decided to overpay £20,000, ERCs would apply to £10,000, which would mean paying an ERC of £200.
How to avoid paying an early repayment charge
Wait until the early repayment period expires.
Find a mortgage without such a charge (see more on this below).
If you’re remortgaging, make sure the new one doesn’t start until your current mortgage’s repayment period ends.
If you’re moving house, see if you can port your mortgage – ie take your current mortgage with you to your new property.
Finding a mortgage without early repayment charges
If you value flexibility or you think your circumstances might change before your mortgage deal expires, it’s really important to take ERCs into account when you’re looking for a mortgage or remortgage.
If you think you might need to repay early – whether to sell up, move or overpay – before the mortgage deal ends, you might be better off considering a product with low or no ERCs, even if that means paying a little more in interest.
Some people accidentally incur ERCs by remortgaging too early. Before giving a completion date for your remortgage, make sure you double check the expiry date of any ERCs and only complete after this time.
Should you pay ERCs?
ERCs can be extremely costly, frequently amounting to thousands of pounds, but sometimes it might still be the right decision to pay them. For instance, if you’re on an expensive mortgage deal, it might still be more cost-effective to pay the ERCs to move onto a cheaper deal.
You may also want to remortgage to a different type of product – for instance from a variable rate to a fixed rate for peace of mind – in which case you might consider that the ERCs are worth paying.
Finder survey: Most common living arrangements among Brits
Response
55+
45-54
35-44
25-34
18-24
A home that I/we own outright
45.11%
18.59%
12.81%
11.2%
14.42%
Social housing such as council house
20.11%
18.03%
13.13%
14.01%
17.67%
A home that I/we own with a mortgage
16.67%
37.75%
40.94%
28.85%
13.95%
Private rental accommodation
14.95%
21.69%
28.13%
33.05%
20.93%
Other
1.32%
0.56%
0.31%
0.56%
3.26%
I/We live with my family
1.06%
3.1%
2.5%
10.36%
28.84%
Sheltered housing
0.79%
0.28%
2.19%
1.96%
0.93%
Source: Finder survey by Censuswide of 2003 Brits, June 2023
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
How do property prices in the UK compare to the rest of the world? We estimated the cost of a city centre 2-bed flat in 106 countries to find out.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser Disclosure
Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which Finder receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. Finder compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
