What is an early repayment charge? (ERC)
An early repayment charge is a penalty that your provider may charge if you want to change, or end your current mortgage too early. You can face an ERC if you have overpaid on your mortgage by more than the provider allows, or if you pay off the entire loan too early. A mortgage deal or mortgage product is not the entire term of the mortgage, but the length of time you pay an initial rate of interest, before moving onto your lender's standard variable rate. The tie-in period of your mortgage deal is the length of time that an early repayment charge will apply.How much is an early repayment charge?
ERCs vary from deal to deal but are typically between 1% - 5% of the mortgage. These rates can sometimes reduce over time, but this is up to the lender.When will I have to pay an ERC?
If your mortgage deal has a charge for early repayment, it will usually occur during the tie-in period under the following conditions:- Switching to a new deal with a different rate
- Paying off your mortgage or making an overpayment above the lender’s allowance.
- You sell the property and the mortgage can not be ported onto the next property.
Ways to avoid ERCs
- Choose a deal with no ERC - some lenders will offer flexible offers that allow you to overpay without limitation. Though, be sure to consider the interest rate and any arrangement fees in your calculations.
- Know how much you can overpay each year without a penalty, and don't go over this limit.
- Port your mortgage when you move - some lenders may let you transfer your current mortgage deal to another property without paying a charge. However, be aware that this is not guaranteed and can vary depending on the type of mortgage you have.