Early repayment charges explained

An early repayment charge (ERC) is a fee for leaving your mortgage deal before the fixed or discounted period ends. It is normally a percentage of the amount repaid and often steps down each year. You usually pay no ERC once the deal has ended, within your annual overpayment allowance (often around 10%), or sometimes when porting to a new home. Paying an ERC to switch can still pay off if a new deal is far cheaper: compare the totals.

How an ERC is usually structured

An ERC is normally a percentage of the balance you repay, and it commonly tapers over the deal so it costs more to leave early than late. As an illustration only (your own offer is what counts), a five-year fix might apply 5% in year one and fall by around a percentage point each year to 1% in the final year. The charge protects the lender against you leaving the funding it arranged to give you a fixed rate, which is why it is largest at the start.

When you can avoid it

• Once the deal period has ended and you are on the standard variable rate.
• Within your annual overpayment allowance, often around 10% of the balance a year.
• By porting the mortgage to a new property, where the lender allows it.
• At a contractual end date set out in your mortgage offer.

When paying it can still pay

Leaving early is not automatically a mistake. If a new deal is markedly cheaper, the saving across the remaining years can be larger than the ERC plus switching fees. The only way to be sure is to compare the full cost of staying against the full cost of leaving with the ERC included. The switch or stay tool does exactly that, and a regulated broker can confirm the real figures.

Common questions