Early Repayment Charges Explained: What Homeowners Need to Know

When taking out a mortgage, most borrowers focus on interest rates and monthly repayments. However, another important factor to consider are early repayment charges (ERC).

An early repayment charge is a fee that may apply if you repay all or part of your mortgage sooner than agreed. This could happen if you remortgage, sell your home or make large overpayments  before the end of your deal period.

Understanding how mortgage early repayment charges work can help you avoid unexpected costs and make better decisions about your mortgage. In this guide, we explain when ERCs apply, how they are calculated, and what homeowners should consider before making changes to their mortgage.

What are early repayment charges?

An early repayment charge on a mortgage is a fee charged by a lender if you repay all or part of your mortgage before the end of a specific deal period.

This usually applies during the introductory phase of a mortgage, such as a fixed-rate mortgage, tracker mortgage, or discounted rate deal. Lenders apply these charges to recover some of the costs associated with offering favourable interest rates.

Once your deal period ends and the mortgage moves onto the lender’s standard variable rate (SVR), early repayment charges typically no longer apply.

How do early repayment charges work?

Early repayment charges usually apply during the initial period of a mortgage deal. This might be a two-year or five-year fixed rate, for example.

In most cases, the charge is calculated as a percentage of the remaining mortgage balance. The percentage often reduces each year.

For example, a typical early repayment charge structure might look like this:

• 5% of the outstanding balance in year one
• 4% in year two
• 3% in year three
• 2% in year four
• 1% in year five

Some mortgage products allow limited overpayments without triggering an ERC. Many lenders permit overpayments of up to 10% of the outstanding balance per year without a penalty. If you’re considering making extra repayments, it’s worth understanding the rules around mortgage overpayments.

When do early repayment charges apply?

Early repayment charges might be triggered in different scenarios:

• Remortgaging your mortgage before the end of your deal period
• Selling your property while still within a fixed-rate or introductory deal
• Switching to a different mortgage product early
• Paying off the mortgage in full before the deal ends
• Making large overpayments that exceed your lender’s allowance

Are there mortgages without early repayment charges?

Yes, some mortgages are available without early repayment charges including:

• Mortgages on a lender’s standard variable rate (SVR)
• Certain tracker mortgages
• Some buy-to-let mortgages

However, greater flexibility often comes with trade-offs. Mortgages without ERCs will often have higher interest rates, fewer incentives, or different eligibility requirements. This means borrowers often need to balance flexibility with overall cost.

Early repayment charges and equity release

Early repayment charges can also apply to equity release products, particularly lifetime mortgages.

In some cases, lifetime mortgage early repayment charges are calculated using a structure linked to government bond yields, sometimes referred to as “gilt-based” charges. This can make them more complex than standard mortgage ERCs.

Charges can sometimes be higher depending on market conditions and how early the loan is repaid.

Some equity release products include features designed to offer more flexibility, such as downsizing protection (which allows borrowers to repay the loan without penalty if they later move to a smaller property) or inheritance protection (which reserves part of the property value for beneficiaries).

Is it worth paying an early repayment charge?

In some cases, paying an early repayment charge may still make financial sense.

For example, homeowners might choose to pay an ERC if:

• They can switch to a significantly lower interest rate
• They want to avoid moving onto a higher standard variable rate
• They need to release equity for another financial purpose

However, the decision should always be based on the overall financial impact, not just the ERC itself.

It’s important to consider:

• The cost of the early repayment charge
• New mortgage arrangement fees
• Potential savings from lower interest rates over time

At Flagstone, we can help you calculate the total cost comparison and determine whether switching mortgages early is worthwhile.

Get in touch with our mortgage advisors here.

How to avoid early repayment charges on a mortgage

While early repayment charges are common, there are several ways borrowers can minimise or avoid them.

These include:

• Checking the deal end date before remortgaging or switching lenders
• Making use of permitted overpayment allowances
• Porting your mortgage when moving home rather than repaying it
• Choosing flexible mortgage products that allow more repayment freedom
• Seeking professional advice before making major mortgage changes

It can also be worth reviewing your financial protection when adjusting your mortgage. For example, mortgage protection insurance can help safeguard your repayments if your circumstances change.

Speak to a mortgage advisor before making changes

Early repayment charges can vary significantly between lenders and mortgage products. Understanding the potential costs before making a decision is essential.

Speaking to a mortgage advisor can help you evaluate your options and avoid unexpected charges. At Flagstone, our advisors have whole-of-market access, so we can compare mortgage products across a wide range of lenders and also have access to special rates.

Our experienced team can help you:

• Understand the costs involved in remortgaging
• Compare available mortgage deals
• Assess whether paying an ERC is worthwhile
• Identify options that better suit your long-term plans

With dedicated advisors and a mortgage service centre supporting your application, we help guide borrowers through every stage of the process.

If you are considering remortgaging, selling your home, or making significant changes to your mortgage, speak to the Flagstone team before taking action. The right advice could save you thousands in unnecessary early repayment charges.

FAQs about early repayment charges

How much is an early repayment charge on a mortgage?

A typical early repayment charge on a mortgage is usually between 1% and 5% of the remaining loan balance, depending on how long is left on your deal. For example, a 3% ERC on a £200,000 mortgage would be £6,000.

Are there early repayment charges on all mortgages?

No. Early repayment charges usually apply during the introductory period of fixed-rate, tracker or discounted mortgages. Once that period ends, the mortgage often moves onto the lender’s standard variable rate, where ERCs typically no longer apply.

Is it worth overpaying a mortgage with an early repayment charge?

Many lenders allow borrowers to overpay up to 10% of their mortgage balance each year without triggering an ERC. Overpaying can reduce interest costs, but exceeding your allowance may result in charges. A mortgage advisor at Flagstone can help you check your mortgage terms before making extra payments.

Can you remortgage if you have an early repayment charge?

Yes, you can remortgage even if an early repayment charge applies, but the fee may need to be paid if you leave your deal early. In some cases, switching to a lower rate can still save money overall. Flagstone can help compare deals and calculate whether remortgaging your mortgage is worthwhile.

What happens if you sell your house during a fixed-rate mortgage?

If you sell your home during a fixed-rate mortgage deal, your lender may apply an early repayment charge because the mortgage is being repaid early. In some cases, you may be able to port your mortgage to a new property instead.

Can an early repayment charge be waived?

Sometimes lenders may waive or reduce an early repayment charge, for example if you switch to another product with the same lender. However, this depends on the mortgage terms and lender policies. A mortgage advisor can review your mortgage agreement and discuss possible options.

Does paying an early repayment charge affect my credit score?

No. Paying an early repayment charge does not affect your credit score, as it is simply a fee for repaying your mortgage earlier than agreed. However, if you apply for a new mortgage, lenders will still assess your credit history and financial circumstances.

Can I port my mortgage to avoid an early repayment charge?

Yes, porting your mortgage means transferring your existing mortgage deal to a new property rather than repaying it. This can sometimes help you avoid an early repayment charge, although the lender will still reassess your application.

Do buy-to-let mortgages have early repayment charges?

Most buy-to-let mortgages include early repayment charges during the initial deal period, especially on fixed-rate products. However, some variable-rate mortgages or flexible deals may not have ERCs. If you’re considering refinancing or switching lenders, Flagstone can help compare buy-to-let mortgages and explain the repayment conditions.