Early repayment charges

What an ERC is

An ERC is a fee charged if you repay more than your allowance, or clear the mortgage entirely, during the product’s tie-in period. It’s typically a percentage of the balance repaid — often stepping down each year of a fixed deal, for example 5% in year one falling to 1% by the final year.

Once the tie-in ends — and on most SVR and many tracker products — there’s usually no ERC at all.

Why contractors should care

Contracting income can arrive in lumps — a lucrative contract may leave you wanting to clear a chunk of the mortgage quickly. Understanding your ERC and overpayment allowance means you can do that efficiently rather than triggering a penalty.

• Most lenders allow penalty-free overpayments of up to 10% of the balance a year.
• ERCs usually reduce each year through a fixed term.
• Porting your mortgage to a new property can avoid an ERC when you move.

Planning around them

If you expect to repay early — through a windfall, a move, or a remortgage — factor the ERC into the maths, or choose a product with no tie-in. A broker weighs the rate against the flexibility for your situation.

When is an ERC worth paying?

Occasionally it is. The test is arithmetic rather than principle: compare the charge against the total saving from switching over the remaining period. If a materially better rate would save more than the penalty costs across the time you would hold it, leaving early can be the right decision.

What makes that comparison honest is counting the whole cost of moving — the charge, any exit or deeds fee, and the new deal's arrangement fee — against the whole benefit, not just the monthly difference. Remortgage costs and fees lists what to include, and the remortgage calculator models the saving side.

Ways to avoid it entirely

Three routes are worth knowing. Timing: most charges fall away at the end of the deal period, so starting your search three to six months out usually means never encountering one. Porting: if you are moving home and the deal is portable, you carry the rate to the new property instead of exiting it. A second charge: if you need to raise money rather than re-price, borrowing behind your existing mortgage leaves the deal — and its charge — untouched.

That last route is often overlooked. Capital raising and second charge compares it against remortgaging, and the answer frequently turns on the size of the ERC rather than on the rates themselves.

Overpayments and the annual allowance

Most deals permit overpayments up to a set percentage of the balance each year — commonly around 10% — without triggering anything. Exceed the allowance and the charge can apply to the excess, which will comfortably undo the benefit of overpaying.

Lenders differ in how they measure the allowance: some run it on the calendar year, some on the anniversary of the deal, and some calculate it against the balance at the start of the year rather than today's. Confirm yours before setting up a standing order, and size the effect on the overpayment calculator.