Early Repayment Charge – ERC Mortgage

 

What Is an Early Repayment Charge (ERC)?

An Early Repayment Charge, or ERC, is a fee your mortgage lender might charge if you:

• Pay off your mortgage early.
• Switch to a new deal before your fixed or introductory rate ends
• Make overpayments above your allowed limit (usually up to 10% – 20% of your outstanding balance each year)

ERCs are part of many mortgage agreements, especially fixed-rate deals. Always check your Mortgage Illustration or offer document to see if any charges apply.

How Do Early Repayment Charges Work?

ERCs are typically worked out as a percentage of what you still owe on your mortgage. They often range between 0.5% and 5% of the outstanding balance.

Example:

If you have £250,000 left on your mortgage: (after any overpayment allowance)

• A 1% ERC = £2,500
• A 5% ERC = £12,500

These charges tend to be highest in the early years of a mortgage deal and may reduce as time goes on. For example, with a 5-year fixed-rate mortgage, the ERC might fall gradually in the final two years — but this varies between lenders.

Why Do Lenders Charge ERCs?

Lenders rely on earning interest over the full length of your deal. If you leave early, they lose some of that income. ERCs help them recover some of those losses — it is their way of protecting the business side of lending.

Do All Mortgages Include Early Repayment Charges?

No, not every mortgage includes ERCs. They are common with fixed-rate mortgages, but some tracker or discounted variable-rate mortgages may not have them — or might only charge for early exit in the first few years.

If you are not sure, a mortgage broker can help you find options with low or no ERCs, depending on your goals.

 

What You Need to Know About Lifetime ERCs

A Lifetime Early Repayment Charge (Lifetime ERC) is a rare feature on some UK mortgages where the early repayment penalty applies for the entire term of your mortgage, not just for the fixed or initial Period. This means if you want to pay off your mortgage early or move to another lender after you fixed or initial period —you could still have to pay redemption penalty.

Example to Explain

Imagine you take out a mortgage with a Lifetime ERC. Years later, you decide to move house or remortgage for a better deal. Unlike most mortgages, where you would be free from penalties after the initial fixed or discounted period, a Lifetime ERC means you would still have to pay a fee, during the term of mortgage, even if you are on variable rate with respective lender.

 

How Much Could the Lifetime ERC Be?

Lenders can charge as little as 1% for the lifetime of the loan. This means that no matter when you repay early—whether it is year five or year twenty—you would pay a 1% fee on the amount you repay. In the early years, the ERC can be higher (for example, up to 5% in the first year), but after the initial period, it drops to 1% (or as charged by lender) for the rest of your mortgage.

Why Is This Information Important for You?

• Avoid Surprises: Knowing about Lifetime ERCs helps you avoid unexpected fees if you want to change your mortgage or move in the future.
• Plan Ahead: If you think you might want to repay your mortgage early or remortgage later, a Lifetime ERC could make this expensive.

 

How Can We Help You Understand ERCs?

 

Understanding Early Repayment Charges (ERCs) can make a real difference when choosing a mortgage. These charges can limit your flexibility and cost you more in the long run if you are not careful — but with the right guidance, you can avoid unnecessary penalties.

Here are a few smart ways to reduce or avoid ERCs altogether:

• Time your remortgage right
  Avoid ending your deal early. Start exploring new options about 6 months before your fixed period ends.
• Understand tiered charges
  Some lenders reduce ERCs each year. Knowing when this drop could help you make better-timed decisions.
• Stick to your overpayment allowance
  Most lenders allow up to 10% overpayment of your mortgage balance per year without penalty. Exceeding this limit might trigger an ERC.

 

Need Expert Guidance?

Thinking about switching deals or repaying your mortgage early?
We are here to help you understand your current terms, explore flexible options, and avoid long-term costs.

📞 Call us on +44 02081 878 876
or request a callback for friendly, personalised advice.

Let us make sure you are on the right mortgage — one that works for you now and in the future.