Head of Content
Mortgage Advisor & Director
What is a mortgage early repayment charge?
Early repayment charges (ERCs) are a feature of some mortgages and are incurred when you either pay back the mortgage early or exceed the limit on overpayments within a specified timescale.
Also known as redemption fees or redemption charges, early repayment charges typically range from 1-5% of the total value of your mortgage and, as such, can run into thousands of pounds. For mortgages that include ERCs, they typically apply for the fixed initial period.
When do early repayment charges apply?
Early repayment charges are generally applied when the mortgage is exited early, which can be the result of various factors such as remortgaging early, a change in circumstances such as divorce, or moving home and getting a new mortgage.
They won't apply if you're porting your mortgage as you will be sticking with your existing deal. Early repayment charges are definitely something to consider if you feel your circumstances may change within your mortgage's initial period, as they can add a great deal of expense.
Will I incur a fine for making overpayments?
If you have an ERC as part of your mortgage, you should be aware of the limits for overpayments as you may incur a fine if this limit is exceeded. Typically, the permitted overpayment is 10% of the mortgage value, sometimes up to 20%.
If you're making overpayments on your mortgage, you should be aware of the annual limits on overpayments to ensure you don't incur a fine.
Can I get a mortgage without an early repayment charge?
Yes! There are mortgage deals that do not apply an early repayment charge. The reason that ERCs exist on mortgages is to mitigate against loss when you exit the mortgage early, so you are more likely to be offered higher interest rates for mortgages without an early repayment charge. However, this is offset by the flexibility of changing mortgage without incurring an ERC, so it could be useful to consider ERCs if you feel your situation may change in the short term.
As well as offering flexibility, the other main benefit with no ERC mortgages is the ability to overpay. Overpaying could save you thousands of pounds and take years off your mortgage. For people with variable incomes, the ability to overpay during periods of high earnings may be helpful.
While having no ERCs on your mortgage sounds positive, there are a couple of disadvantages to be aware of. Firstly, they are more expensive as lenders try to mitigate the cost of you leaving the deal by increasing the interest rate or adding more by way of arrangement fees. Secondly, as they are more niche than mortgages with ERCs, they are more challenging to find, and therefore you are narrowing the pool of lenders. The outcome is that although the mortgage may not have ERCs included, it may not meet your needs in other ways.
Which mortgages have early repayment charges?
ERCs are relatively common, particularly within fixed-rate and tracker mortgages; however, they are scarcely found in standard variable mortgages.
Do early repayment charges apply for the entire mortgage term?
ERCs generally apply during the initial period of the mortgage and even reduce over time. For example, you may find the ERC is 5% in year one, reducing down to 1% by year 5.
Learn more and apply for a mortgage
Our advisors have helped thousands of people like you to get the best deal possible on their mortgage. As a whole of market broker, we work with hundreds of lenders, offering tens of thousands of mortgage deals. If you're looking for a mortgage without any early repayment charges, our team can help! Get started now, and we promise to make your mortgage journey as stress-free and straightforward as possible.
Get your mortgage in principle certificate in 5 minutes
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 29 February 2024