Early Repayment Charge - ERC Mortgage
Written on 25 March 2025 by
What Is an Early Repayment Charge (ERC)?
An early repayment charge or ERC is a penalty fee that your mortgage provider may charge if you repay your mortgage early, remortgage before your introductory deal ends, or make overpayments exceeding your allocated allowance (typically 10% of the outstanding balance per calendar year). ERCs are often part of your mortgage terms, so be sure to check your Mortgage Illustration or offer document for specific details.
How Do Early Repayment Charges Work?
Early repayment charges are usually calculated as a percentage of your remaining mortgage balance, typically ranging from 1% - 5%. This means the cost can be significant.
Early Repayment Charge Calculation Example
- If your outstanding mortgage is £250,000:
- A 1% ERC would be £2,500
- A 5% ERC would be £12,500
ERCs are generally highest if you leave in the first year of your mortgage term and may decrease as the term progresses. For example, if you have a 5 year fixed mortgage, your ERC may reduce in the final 2 years - but this varies by lender.
Why Do Lenders Have Mortgage Early Repayment Charges?
Lenders impose ERCs to protect themselves from financial losses when borrowers repay their loans early. Mortgage providers rely on long term interest payments, and early repayment means they might not recover their expected profit. ERCs help to offset this loss.
Do All Mortgage Offers Carry an Early Repayment Charge?
Not all mortgages come with ERCs. Some mortgage products, particularly variable rate options such as tracker rates and discounted rate mortgages, may have little to no early repayment charges. However, fixed rate mortgages commonly include ERCs. Before committing to a mortgage, it’s crucial to review the terms and understand any associated ERCs. If you’re using a mortgage broker, they can help you identify mortgages without early repayment charges.
How to Avoid Paying an Early Repayment Charge
While ERCs can be costly, there are strategies to avoid or minimise them:
- Time your remortgage carefully – avoid remortgaging before your introductory deal period ends. Instead, start exploring your options around 6 months before the end of your deal
- Check for a tiered ERC structure – some lenders reduce the ERC as you progress through your mortgage term. Knowing when it decreases can help you plan the best time to switch or repay early
- Stay within overpayment limits – most lenders allow mortgage overpayments of up to 10% per year without triggering ERCs. If you want to pay extra, ensure you stay within this limit to avoid penalties
Need Expert Advice on ERCs?
If you’re unsure about your mortgage terms or want to explore remortgaging options without incurring hefty ERCs, our experienced mortgage advisers are here to help. Contact us today for personalised guidance.
Request a call back or call us on 0330 433 2927 to discuss your options.
Categories:Remortgaging, Sophie Waugh
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.