What an early repayment charge is
When you take a fixed, tracker or discounted mortgage deal, the lender expects to earn interest from you for the whole deal period, say two, three or five years. An early repayment charge is the penalty they apply if you break that commitment by paying off some or all of the loan early.
The ERC is set out in your mortgage offer and key facts illustration, so you always know the figure in advance. It is almost always a percentage of the amount you repay, and on most deals it steps down each year as you get closer to the end of the fixed period.
Typical tapered ERC on a 5-year fix
Charges vary by lender, but a stepped structure like this is common.
| Year of deal | ERC | Cost on £200,000 balance |
|---|---|---|
| Year 1 | 5% | £10,000 |
| Year 2 | 4% | £8,000 |
| Year 3 | 3% | £6,000 |
| Year 4 | 2% | £4,000 |
| Year 5 | 1% | £2,000 |
| After deal ends | 0% | £0 |
Always check your own offer, some lenders use a flat percentage for the whole term.
What triggers an ERC
- Remortgaging to a new lender before your current deal ends.
- Repaying the mortgage in full, e.g. selling without porting the loan.
- Switching to a different product with your existing lender mid-deal.
- Overpaying beyond your annual allowance (commonly 10% of the balance per year).
- Paying off a lump sum from savings, inheritance or a bonus.
How to work out if it's worth paying
Find your ERC
Check your latest mortgage statement or offer for the exact percentage and balance it applies to.
Calculate the charge
Multiply the percentage by your outstanding balance to get the cash cost of leaving now.
Compare the new deal saving
Work out how much you'd save in interest over the term by switching to a cheaper rate today.
Net it off
If the interest saving (minus any fees) beats the ERC, switching early can still pay. If not, wait it out.
How to avoid or reduce an ERC
- Wait until the deal period ends, then remortgage penalty-free.
- Stay within your annual overpayment allowance (often 10%).
- Port your existing deal to a new property when you move.
- Time a remortgage for the final weeks once the ERC has fallen to its lowest step.
- Choose a deal with no or low ERCs if you think you may move or repay early.
Start a remortgage early: but don't complete early
Mortgage offers usually last around six months. You can apply for a new deal a few months ahead and time completion for the day after your ERC period ends, avoiding the charge while securing today's rate.