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An early repayment charge (ERC) is what your lender charges if you pay off some or all of your mortgage during a fixed or discounted rate period beyond what the deal allows. It is usually a percentage of the balance you repay, often stepping down each year of the deal, so on a £200,000 balance a 3% charge is £6,000. Knowing when yours falls away, and starting the remortgage about six months before that date, is the difference between a clean switch and an expensive one.
How early repayment charges work
The charge is set out in your mortgage offer and applies for the length of the incentive period, usually the fixed rate. A common structure on a five year fix is 5% in year one, 4% in year two, 3%, 2% and then 1% in the final year, though plenty of lenders use flat percentages or different steps. It is calculated on the amount you repay early, which for a full remortgage is the whole balance. Most deals allow you to overpay up to 10% of the balance each year without a charge, some allow more, and anything above the allowance attracts the ERC on the excess. Once the fixed period ends you move to the lender’s standard variable rate or a follow-on rate with no ERC, and that is the window in which you can switch freely.
The ERC is a percentage of what you repay, often stepping down each year, and can run to thousands of pounds.
Most deals let you overpay 10% a year without charge, and porting to a new home usually avoids the ERC altogether.
Start the remortgage about six months before the fix ends so the new deal completes the day the charge falls away.
Why the timing matters so much
Remortgage and product transfer offers typically last around six months, and most lenders will let you secure a new rate up to six months before your current deal ends. That lines up neatly: begin the process six months out, have the new mortgage ready, and complete on the first day after the ERC period ends. Leave it too late and you either sit on the standard variable rate for a month or two while the paperwork catches up, or you complete early and pay the charge. Neither is a disaster, but both are avoidable. If you are not sure when your ERC ends, it is in your original mortgage offer and on your annual statement, or I can check it with your lender in a phone call.
When it can be worth paying the ERC
Sometimes. If you are in the last year of a fix on a rate well above today’s market, the 1% charge might be smaller than the saving from switching early. The calculation is the monthly saving multiplied by the months left on the fix, against the charge plus any switching costs. I run it for clients regularly and the answer is usually to wait, but not always, particularly on larger balances where the rate gap is wide. What I would never do is guess. My guide to product transfer versus remortgage covers the switching costs that go into the sum.
Porting: moving home without the charge
If you are moving house during a fixed rate, most lenders let you port the mortgage, taking the existing rate and its remaining term to the new property. Done properly, porting avoids the ERC entirely. It is still a full new application, and if you need to borrow more the extra sits on a separate product with its own dates. If your sale completes before your purchase, lenders usually give you a window to complete the new purchase and reclaim the rate; miss it and the charge can become payable. My moving home mortgages page goes through porting in detail.
Overpayments and the 10% allowance
Most lenders allow overpayments of up to 10% of the outstanding balance each year without penalty, calculated either on the balance at the start of the year or at the start of the deal depending on the lender. Some allow 20%. Overpaying within the allowance is one of the few ways to reduce a mortgage during a fix without any charge, and my guide to whether to make mortgage overpayments covers the trade offs. Go over the allowance and the ERC applies to the excess, not the whole overpayment.
Speak to an expert
Not sure when your early repayment charge ends or whether it is worth paying it? Send me your mortgage offer or annual statement and I will tell you the date and the sums.
What happens if you remortgage before the fix ends
The new lender’s solicitor requests a redemption statement from your current lender, which includes the ERC and any exit fee, and that full figure is paid off from the new mortgage on completion. If you have not budgeted for it, the charge either comes out of your pocket or gets added to the new borrowing, which means paying interest on it for years. That is why I always check the ERC before anything else when someone wants to switch mid deal.
Do product transfers have early repayment charges?
Yes, the new rate you move onto will have its own ERC period, the same as any fixed or discounted product. And if you secure a new rate with your current lender and then change your mind before it starts, most lenders let you cancel without charge, which is one reason locking in early carries little risk.
When to start
Six months before the fix ends is the working rule. Earlier than that and the offers will expire before you can use them; later and you risk a spell on the standard variable rate. If your ERC falls away in the next six months, now is the time to look. Whether you then stay or switch depends on your balance, your lender’s offer and the market that month, which is what an advice appointment is for. Call me on 01425 203055 or book a 15 minute call and I will check your dates.
Need Personal Mortgage Advice?
Every buyer’s situation is different. While this guide explains the general rules, the right mortgage for you depends on your income, deposit, credit history and future plans. If you’d like tailored advice, I’m here to help, with whole-of-market coverage.
