Mortgage Early Repayment Charges: How to Avoid ERCs

An early repayment charge (ERC) is a fee that some mortgage lenders charge if you repay all or part of your mortgage, switch deals or move lender during a period in which an ERC applies.

For some borrowers, the charge can run into thousands of pounds. But paying an ERC isn’t always unavoidable, and in some circumstances, paying the charge can actually make financial sense if the savings from changing mortgage outweigh the cost.

If you’re considering moving home, remortgaging or making a large mortgage overpayment, it’s worth checking your ERC before making a decision.

This guide explains how mortgage early repayment charges work, how to calculate yours and the options you may have for avoiding or reducing the cost.

Quick Answer: How Can I Avoid an Early Repayment Charge?

Depending on your mortgage and circumstances, potential ways to avoid or reduce an ERC can include:

• Waiting until the ERC period ends before switching mortgage
• Staying within your lender’s penalty-free overpayment allowance
• Porting your existing mortgage when moving home
• Choosing a mortgage with low or no ERCs where flexibility is important
• Timing a remortgage carefully around the end of your existing deal

However, an ERC shouldn’t automatically stop you from changing mortgage.

Sometimes the savings or other benefits available from a new mortgage can outweigh the early repayment charge. The important calculation is therefore not simply “How can I avoid my ERC?”, but also “Would I be financially better off paying it?”

If you’re thinking about leaving your mortgage early, an Oportfolio mortgage adviser can compare the cost of staying with your current mortgage against the potential cost and benefits of your alternatives.

What Is an Early Repayment Charge?

An early repayment charge is a fee that may apply if you repay more of your mortgage than your deal allows during a specified period.

ERCs are commonly associated with fixed-rate and discounted mortgage deals.

They may apply if you:

• Repay the mortgage in full
• Remortgage to another lender before your deal ends
• Make an overpayment above the amount permitted by your mortgage
• Sell your property and redeem the mortgage
• Move home without successfully porting your existing mortgage

Whether an ERC applies, and how much it costs, depends on the terms of your individual mortgage.

Your mortgage offer or illustration should explain the charges that apply.

How Do Mortgage Early Repayment Charges Work?

An ERC is often calculated as a percentage of your outstanding mortgage balance.

With some products, the percentage reduces as you move closer to the end of the deal.

For example, imagine you have a mortgage with an outstanding balance of £300,000.

If your ERC were:

ERC	Illustrative charge on £300,000
5%	£15,000
4%	£12,000
3%	£9,000
2%	£6,000
1%	£3,000

These figures are illustrations only. Your lender may use a different ERC structure and the charge will normally be calculated using the relevant mortgage balance at the time.

Check your mortgage offer or contact your lender to establish the exact charge that would apply before making a decision.

Where Can I Find My Mortgage ERC?

Your mortgage documentation should explain:

• Whether an early repayment charge applies
• The period during which it applies
• How the charge is calculated
• The maximum charge that could apply
• Any permitted overpayments

Your lender should also be able to tell you your current redemption figure and any ERC that would apply if you repaid the mortgage.

If you’re considering remortgaging, moving home or making a large overpayment, establishing this figure should be one of the first steps.

Can I Avoid an Early Repayment Charge When Remortgaging?

Potentially, but it depends on when you remortgage and the terms of your current deal.

If you wait until the ERC period has ended before redeeming the existing mortgage, the charge may no longer apply.

That doesn’t necessarily mean you should wait until the last minute before reviewing your options.

You can start discussing your remortgage before your current deal ends so that you have time to investigate the options available and plan when any new mortgage should begin.

Timing is important. Completing a remortgage too early could trigger an ERC, while doing nothing could potentially result in you moving onto your lender’s follow-on rate after your existing deal ends.

Is It Worth Paying an ERC to Remortgage?

Sometimes. The existence of an ERC doesn’t automatically mean that staying with your existing mortgage is the cheapest option.

You need to compare the cost of leaving with the potential financial impact of the alternative.

For example, suppose:

• Your outstanding mortgage is £300,000
• Your current ERC is 1%
• Leaving the mortgage would therefore cost approximately £3,000

You would then need to consider the potential savings or other benefits of the alternative mortgage alongside:

• The £3,000 ERC
• Product or arrangement fees
• Valuation costs, where applicable
• Legal costs, where applicable
• Broker fees, where applicable
• Any other costs associated with changing mortgage

If the overall benefit of changing mortgage outweighs those costs over the period you’re comparing, paying the ERC could potentially make sense.

If it doesn’t, waiting may be more appropriate.

This is why comparing mortgage rates alone can be misleading. The total cost of staying versus switching is what matters.

Can I Avoid an ERC When Moving House?

One possibility is porting your mortgage.

Porting means taking your existing mortgage product with you when you move to another property rather than simply redeeming it and starting again.

If the lender allows the mortgage to be ported and the transaction meets its requirements, this can sometimes help you retain your existing mortgage deal and avoid some or all of an ERC.

However, a portable mortgage doesn’t guarantee that you can move it.

The lender will normally need to assess the new application, including:

• Your current income and expenditure
• Mortgage affordability
• Your credit profile
• The property you’re buying
• Any additional borrowing required

If you’re moving to a more expensive property, you may also need additional borrowing. That extra amount may be arranged on a different mortgage product from your existing loan.

This can leave you with different parts of the mortgage ending at different times, which is something to consider when planning future remortgages.

Oportfolio Case Study: Helping a Client Avoid £44,800 in ERCs

One Oportfolio client wanted to move home while approximately two and a half years remained on his existing fixed mortgage.

He had around £850,000 outstanding at a rate of 1.38% and faced potential early repayment charges of approximately £44,800 if the existing mortgage was redeemed.

Simply paying the charge and replacing the mortgage would have meant giving up the existing rate as well as incurring a substantial ERC.

Oportfolio mortgage adviser Jade Pinkerton investigated whether the existing mortgage could instead be retained as part of the client’s move.

The existing mortgage was successfully ported to the new property, allowing the client to retain the 1.38% rate on that borrowing and avoid the £44,800 early repayment charge.

The case also involved additional complications because the client had recently changed employer and required further borrowing for the new property.

It demonstrates why checking whether a mortgage can be ported can be particularly important before redeeming an existing deal when moving home.

Read the full case study: How We Helped Our Client Avoid £44,800 in Early Repayment Charges.

Can I Overpay My Mortgage Without Paying an ERC?

Potentially. Many mortgage products allow borrowers to make a certain amount of overpayments without triggering an early repayment charge.

The allowance varies between lenders and mortgage products, so don’t assume that a particular percentage applies to your mortgage.

Check:

• How much you’re allowed to overpay
• Whether the allowance is calculated annually or in another way
• What period the allowance applies to
• Whether unused allowances can be carried forward
• What happens if you exceed the permitted amount

If you’re planning a substantial lump-sum payment, check with your lender before transferring the money.

Even where an ERC doesn’t apply, consider whether using a large amount of savings to reduce your mortgage is appropriate for your wider finances.

What Happens If I Overpay More Than My Allowance?

If your mortgage allows penalty-free overpayments and you exceed that allowance while an ERC applies, you may be charged on the amount above the permitted limit.

Exactly how this works depends on your mortgage terms.

For example, don’t assume that exceeding an allowance by a small amount means the ERC will necessarily be charged against your entire mortgage balance.

Your lender can tell you how the charge would be calculated for your particular product.

Do All Mortgages Have Early Repayment Charges?

No. ERC structures vary considerably between mortgage products.

Some deals have ERCs for a specified period, while others can offer greater flexibility or no ERC.

The trade-off is that the mortgage with the greatest flexibility won’t necessarily have the lowest interest rate or lowest overall cost.

If you expect to:

• Move home soon
• Receive a large bonus or inheritance
• Sell the property
• Repay a substantial amount of your mortgage
• Change your mortgage arrangements relatively quickly

then ERC flexibility can be an important factor when choosing a mortgage.

A mortgage shouldn’t therefore be selected purely on its headline interest rate.

Should I Choose a Mortgage With No Early Repayment Charge?

It depends on your priorities. A mortgage with no ERC can be attractive if flexibility is particularly important to you.

For example, you may expect to move home, sell the property or repay a substantial amount of the mortgage relatively soon.

However, a no-ERC mortgage isn’t automatically cheaper overall.

You still need to compare factors such as:

• Interest rate
• Product fees
• Monthly repayments
• Incentives
• Mortgage term
• Flexibility
• Total cost over the period you expect to keep the mortgage

The right balance between rate and flexibility depends on your circumstances and future plans.

Do Early Repayment Charges Apply After a Fixed Rate Ends?

Often, ERCs are linked to the initial mortgage deal period, but you should check your individual mortgage terms rather than assume the charge disappears on a particular date.

Once an ERC period has ended, you may have more flexibility to repay or switch the mortgage without that particular charge.

If your fixed or discounted deal ends and you don’t arrange another mortgage product, you may move onto the lender’s follow-on rate.

That rate may be higher or lower than other options available at the time, so avoiding an ERC shouldn’t be the only consideration when deciding what to do next.

Should I Stay on My Lender’s Standard Variable Rate to Avoid ERCs?

Not solely for that reason. A lender’s standard variable or follow-on rate may offer more flexibility than a fixed mortgage product, but the rate can change and may not represent the most suitable or cost-effective option available to you.

Rather than deliberately remaining on an SVR simply because you want flexibility, compare:

• Your existing lender’s options
• Product transfer deals
• Remortgage options with other lenders
• Mortgages offering lower or no ERCs
• The costs of switching

This gives you a more complete picture than comparing ERCs in isolation.

What If My Mortgage Deal Ends Soon?

If your current mortgage deal is approaching its end, it’s worth reviewing your options before the expiry date.

This gives you time to understand:

• When your ERC ends
• Your current lender’s product-transfer options
• Remortgage options with other lenders
• Any fees involved in switching
• What happens if you take no action

The best time to start depends on your circumstances and the mortgage options available, but you don’t necessarily need to wait until the existing deal has already expired before seeking advice.

Can a Mortgage Broker Help Me Avoid an ERC?

A mortgage broker can’t simply remove an ERC contained within your existing mortgage contract.

What they can do is help you understand the options around it.

For example, an adviser can investigate:

• Whether your mortgage can be ported
• Whether you can remortgage after the ERC period ends
• Whether paying the ERC could still be financially worthwhile
• Whether a product transfer is an alternative
• Whether a more flexible mortgage would suit your future plans
• How additional borrowing could work when moving home

For borrowers with larger mortgages, this analysis can be particularly valuable because even a relatively small ERC percentage can represent a substantial amount of money.

Thinking About Leaving Your Mortgage Early?

If you’re considering remortgaging, moving home, making a substantial overpayment or repaying your mortgage early, don’t look at the ERC in isolation.

At Oportfolio Mortgages, we can review your existing mortgage alongside the alternatives available to help you understand the costs and options involved.

For some borrowers, waiting until an ERC expires may make sense. For others, porting the existing mortgage or paying an ERC to access a different arrangement may be worth considering.

Speak to an Oportfolio mortgage adviser about your options

If your mortgage deal is approaching its end, you can also speak to us about your remortgage options before deciding what to do.