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Can you get a Mortgage with no Early Repayment Charge?
If you're reviewing mortgage options, you may be wondering if it's possible to find a mortgage with no early repayment charges (ERCs). Having the flexibility of exiting your mortgage early or making additional payments without being penalised can be attractive to many borrowers, particularly if your situation is likely to change within the initial period of the mortgage.
In the UK, the good news is that there are mortgages available with no early repayment charges.
At Teito, as a whole of market broker, we can help you find a mortgage that best fits your individual circumstances and requirements. We have access to mortgage products with no early repayment charge from many lenders, giving you the freedom to make additional payments without incurring any fees or charges.
If you’d like to find out more about mortgages with no early repayment charges and the best product for your circumstances, get in touch with Teito today. We will work with you to help you find the best deal available.
What is an Early Repayment Charge?
An Early Repayment Charge is a fee that lenders may charge if you decide to pay off your loan in full (or more than the permitted overpayment) before the end of its initial period.
The fee can vary depending on the lender and the type of mortgage you have, but it can be substantial. For example, it could be as much as 5% of the total amount outstanding on your loan. It's important to understand what an Early Repayment Charge means for your mortgage, as it could have a significant effect on how much you pay overall.
Early Repayment Charge mortgages protect lenders if the borrower decides to pay off their loan early. As such, it's important to consider the fees and charges upfront before taking out a new mortgage.
Reasons why you might need to pay off your mortgage early
There are various reasons why you might need to pay off your current deal early. Here are a few of the common ones:
Moving House
If you're planning to move house, it's likely that you'll need to remortgage your property. This means that you'll be paying off the remainder of your current mortgage and moving it to a new lender.
If this is the case, then you may incur an Early Repayment Charge if your current mortgage deal has them in place. There are mortgage deals that are portable, meaning that you can take them with you to a new property, but this isn't always the case.
Changing Lender
You may decide to switch your current mortgage lender if you can find a better deal elsewhere. If you choose to do this, then you’ll need to pay off the remainder of your existing loan and take out a new one with the new lender. As such, you may incur ERCs if your current mortgage agreement has them in place.
It's important to take ERCs into account when you're calculating any savings.
Change of Personal Circumstances
An unexpected change of circumstances such as redundancy, ill health or divorce may mean that you need to sell your home and pay off your mortgage deal early. An ERC mortgage could add to the expense and stress of this situation.
Making Overpayments on your Mortgage
Most mortgage deals will permit overpayments to a certain level, typically 10% of the outstanding mortgage balance each year. If you make an overpayment that is greater than this, then you may incur ERCs.
So if you're planning to make extra payments on your mortgage, it's important to check the terms and conditions of your deal first to avoid any unexpected fees or charges.
Is it worth paying an early repayment charge?
There may be situations where it's worthwhile paying an Early Repayment Fee and may be occasions where you're left with no other choice.
For example, if you find a new mortgage deal that outweighs the expense of ERCs, then it could be beneficial to pay the fee and switch lenders. The same applies if you need to remortgage due to a change in your personal circumstances.
It's important to weigh up all of the options before making a decision, as it could potentially save you money in the long run.
How to avoid early repayment charges
Early repayment charges (ERCs) can be a costly burden if you're looking to remortgage or pay off your mortgage early. Fortunately, there are ways to avoid them.
The most common way of avoiding ERCs is to wait until the early repayment period expires, even if this means spending a brief period of time on an SVR mortgage. This is usually the lowest-cost option. You should also make sure not to overpay your mortgage by more than allowed under the terms of your mortgage deal, as this will incur an ERC.
It's also important to consider whether remortgaging is actually worth it in the first place; securing a lower interest rate than your current mortgage doesn't guarantee you'll be saving money, and you could end up paying more in fees than you save in interest payments.
Are there mortgages without early repayment charges?
Yes! There are mortgages available without an early repayment charge, most of which are variable-rate mortgages, rather than fixed-rate mortgages. This means that the interest rate can fluctuate over time, so you may need to factor this into your calculations.
Tracker mortgages
Tracker mortgages are a type of variable rate mortgage, which typically follows the Bank of England base rate. This means that your mortgage repayments will fluctuate in line with the base rate, so if you're someone that likes the stability of fixed mortgage payments then this might not be suitable for you.
However, with no ERCs and the potential for a lower interest rate than a fixed-rate mortgage, a tracker mortgage could be a great option if you're looking to avoid ERCs.
Offset mortgages
Offset mortgages are a type of variable-rate mortgage that links your savings account with your mortgage.
Your money in the savings account is then 'offset' against your mortgage balance, meaning you only pay interest on the difference between them. This can be beneficial as it allows you to reduce your overall interest payments and potentially save money over time. It also means there are no ERCs if you decide to remortgage or pay off your loan early.
Overall, offset mortgages can be a good way to avoid ERCs whilst reaping some of the benefits of variable-rate mortgages such as lower interest rates.
Discounted rate mortgages
Discounted rate mortgages are another type of variable-rate mortgage, which allow you to pay a discounted interest rate for an agreed period. This means you can benefit from lower monthly payments during this time, and potentially save money.
Standard Variable Rate (SVR) mortgages
The Standard Variable Rate (SVR) is set by the mortgage lender, so while they are influenced by market conditions, lenders can set the rate at whatever they choose.
SVR mortgages generally have no early repayment charges, so if you're looking to remortgage or pay off your loan early, then this could be a great option. However, SVRs can typically come with higher interest rates than other mortgage options, so make sure you compare the costs and benefits before making a decision.
Pros and cons of early repayment charge-free mortgages
The main advantage of mortgages without ERCs is that you can pay the loan off early if your circumstances change, without incurring any additional costs. This could be beneficial if you need to move home or have an unexpected change in personal circumstances.
The downside is that you will most likely be limited to variable-rate mortgages, as the majority of fixed-rate mortgages come with ERCs. Variable-rate mortgages can be riskier as the interest rate is variable and may rise unexpectedly.
These deals are also likely to be offered at a slightly higher rate than their ERC-inclusive counterparts. This is to cover the risk of early repayment for the lender.
Ultimately, it's worth considering all of your options before taking out a mortgage and deciding which deal is best suited to your needs. If you're unsure, then it may be beneficial to speak to one of our expert mortgage advisors. They will be able to help you weigh up the pros and cons and advise what type of mortgage would suit you best. This can save time and money in the long run.
What happens when your initial period runs out?
When we talk about 2-year or 5-year fixed-rate mortgages, we usually mean the initial fixed-rate period of two or five years. Once the rate expires, you will move onto the lender’s Standard Variable Rate (SVR) unless you remortgage to another deal with a different provider.
It's important to remember that if you switch mortgage lenders during this period, then you may incur ERCs if your current mortgage has them in place. It's worth doing your research and weighing up all of your options before making a decision as there could be better deals out there that save money in the long run.
Ultimately, if you're unsure about which deal is best for you then it's always beneficial to seek professional advice from an expert mortgage advisor. They will be able to access the wider market and help find the most suitable product for your needs.
It's not just about finding the cheapest deal - often, there are other factors that need to be considered such as fees, product features and flexibility. A good mortgage broker will take all of these into account when recommending a product. This can save time and money in the long run!
Our advisors are experienced in helping customers find a mortgage with no early repayment charge so don't hesitate to contact us today if you need help.
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.
