Avoid Surprise Fees: Understanding Early Repayment Charges on Mortgages

When you take out a mortgage deal (especially a fixed-rate or discounted), you may see lower payments during the deal period. But exiting that deal early—through remortgaging, overpaying, selling your home, or switching lenders—can come with hidden costs. These are called Early Repayment Charges (ERCs). Understanding how they work helps avoid surprises and costly penalties.

Let’s break down what these are, when they apply, and how to avoid them.

🔍 What Is an Early Repayment Charge (ERC)?

An ERC is a penalty a lender may charge if you repay all or part of your mortgage early, switch mortgage products, or exceed your overpayment allowance during your deal period. Moneyfactscompare+2Lloyds Bank+2

Key points:

• ERCs typically range between 1% and 5% of the amount you repay early. Moneyfactscompare+2Lloyds Bank+2
• The percentage often decreases the longer you stay in the deal (for example: 5% in year 1, 4% in year 2, etc.). Moneyfactscompare+1
• ERCs may apply to overpayments beyond your annual allowance (many mortgages allow ~10% overpayment per year without penalty) NerdWallet+2Nationwide+2

⚠️ When Can You Be Charged an ERC?

Here are common scenarios when an ERC might kick in:

• You repay your mortgage early or in full before the end of the deal term Moneyfactscompare+3Nationwide+3Halifax+3
• You remortgage or switch lenders before your deal ends Nationwide+2NerdWallet+2
• You overpay beyond your lender’s allowed limit for that year (often ~10%) NerdWallet+3Halifax+3Nationwide+3
• You move home and cannot port your mortgage (or only partially port) Nationwide+2Halifax+2

Some lenders also exempt ERCs in particular circumstances (e.g. death, critical illness, or moving into care). Nationwide+1

💷 How Much Could It Cost?

Here’s an illustrative real-life example:

Suppose you have a £200,000 mortgage on a five-year fixed deal.

• In year 1, ERC = 5% → you’d pay £10,000 to exit early. Moneyfactscompare+2Lloyds Bank+2
• In year 5, if the lender’s ERC rate has decreased to 1% and your balance is lower (say £160,000) → you’d pay £1,600. Moneyfactscompare+2NerdWallet+2

Remember: the actual cost depends on your lender, your mortgage terms, how much of the mortgage remains, and how early you exit. principality.co.uk+2Lloyds Bank+2

✅ How to Avoid or Reduce ERCs

Here are several strategies that borrowers can use to avoid or minimise ERCs:

1. Check your mortgage’s terms early
   Before you sign, review the documentation to see whether there’s an ERC, how it’s calculated, and what your overpayment allowance is. NerdWallet+2principality.co.uk+2
2. Stay within overpayment limits
   Many lenders allow overpaying up to ~10% of the outstanding mortgage balance per year without triggering ERCs. principality.co.uk+2NerdWallet+2
3. Move / remortgage at the right time
   Wait until just after your deal period ends (fixed/discount) before switching or remortgaging to avoid the ERC. Some lenders allow product transfers which may have lower ERCs or waive them under certain conditions. HomeOwners Alliance+1
4. Port your mortgage if moving
   If your lender allows you to “port” the mortgage (i.e. move the deal to a new property), you may avoid or reduce the ERC. But conditions usually apply. haart+1
5. Choose a mortgage with no ERC
   Some deals — often variable rate, tracker, or special “no ERC” fixed deals — offer more flexibility. The trade-off may be a slightly higher rate or fewer perks, so compare carefully. Ideal Home+1
6. Negotiate

If staying with the same lender or nearing the end of the term, ask whether they’ll waive or reduce the ERC.

🛠  Checklist points with your broker to avoid/reduce ERCs

Here’s a broker-checklist you can use to make sure they help you avoid or reduce Early Repayment Charges (ERCs). You can use it in meetings or emails to steer the conversation.

What to Ask / Check	Why It Matters
“What is the exact ERC schedule for this product?”	To know how much the charge is, how it steps down over time, and when it ends. Makes planning much clearer.
“What is the overpayment allowance?”	If your mortgage allows you to overpay up to a certain % per year without ERCs, using that can reduce the loan without penalties.
“Can I port the mortgage if I move home?”	If the lender allows porting, you may avoid an ERC when moving property.
“Are there any ‘no ERC’ or very low-ERC products you recommend?”	Some lenders have deals with no early repayment penalties or very low ones, even on fixed deals.
“When exactly does the fixed / introductory deal end?”	Helps time any remortgage or product switch to avoid incurring ERCs.
“Is there a product transfer option with my current lender?”	Staying with the same lender but switching to a new product may avoid or reduce ERCs vs going to a new lender.
“What are the fees involved in exiting/ switching?”	Beyond the ERC, there may be valuation fees, legal fees, exit fees. You need the full cost picture.
“What savings do I get with the new deal vs the cost of ERC?”	Helps assess whether it’s worth paying the ERC to get into a better rate or if you should stay put.
“Is there flexibility or negotiation possible on ERCs in my case?”	Sometimes lenders will waive or reduce ERCs under special circumstances (e.g. end of term, moving due to job, etc.).
“What risks / downsides should I be aware of if I exit early?”	Make sure you understand any penalties, interest differences, or cost surprises.
“Do you have examples of past clients who exited early and what their costs were?”	Real case studies help you visualise what the ERC cost might look like in practice.

🔍 How can Empreso Help you?

At Empreso, one of the most valuable things we do for our clients is to help them understand early repayment charges (ERCs) and structure their borrowing in a way that avoids unnecessary penalties.

Here are some specific actions we take to help our clients reduce/avoid ERCs:

 1. Educate our client on ERCs

Ensure they understand when ERCs apply (e.g., switching lenders early, paying off lump sums, selling property).

 2. Match product term to the client’s plans

Advise a mortgage length that fits your future (e.g. moving, remortgaging, paying off early) so you don’t get stuck with ERCs.

 3. Use overpayment-friendly products

For clients who wish to reduce their balance quickly, we recommend lenders with generous overpayment allowances.

4. Plan for remortgage timing

Remind clients in advance—this saves them both ERCs and expensive standard variable rates.

 5. Consider “no ERC” or flexible products

Advise our client to choose a mortgage that fits their future plans, balancing cost and flexibility, so they can avoid paying unnecessary ERCs.

6. Warn against common pitfalls

Remind clients not to repay early, switch lenders mid-deal, or use bonuses/inheritance to clear the mortgage without checking ERC rules first.

At empreso, we always add value by understanding our clients’ short- and medium-term plans, recommending the right product type, and setting reminders to remortgage at the right time.