An early repayment charge can turn an attractive remortgage rate into an expensive switch. If you want to leave a fixed or discounted mortgage deal before its agreed end date, your current lender may charge a fee for repaying the loan early. The key question is therefore not simply whether a new mortgage has a lower rate, but whether the saving is large enough to outweigh the cost of leaving your existing deal.
What is an early repayment charge?
An early repayment charge, often shortened to ERC, is a fee that can apply when you repay all or part of a mortgage before a date set out in your contract. In a remortgage, your new lender normally sends funds to repay the old mortgage, so an ERC can be triggered even though you are not selling the property.
For regulated mortgages, FCA rules require an ERC to be expressible as a cash amount and to be a reasonable pre-estimate of the lender’s costs. Your actual charge depends on the terms you agreed to, so your mortgage offer and a current redemption statement matter more than a general rule of thumb.
How much can a mortgage ERC cost?
MoneyHelper says an ERC is usually calculated at around 1% to 5% of the outstanding mortgage balance, although some deals use a flat charge. Many products use a stepped structure, with the percentage falling as the deal gets closer to its end date.
For example, imagine you have £180,000 left on your mortgage and the applicable ERC is 2%. Repaying the loan during that period could create a £3,600 charge. If the ERC falls to 1% later, the same £180,000 balance would produce a £1,800 charge before allowing for normal repayments.
This is why timing matters. A new rate that looks compelling today may become much better value once your existing mortgage moves into a lower ERC band or reaches the end of the charge period.
When does an ERC apply when remortgaging?
An ERC commonly applies when you leave your mortgage deal early, particularly during a fixed-rate or discounted-rate period. It can also apply if you make a large lump-sum repayment or regular overpayments above the amount your mortgage permits without a penalty.
Many mortgages allow some overpayment each year without an early repayment fee, and a 10% annual allowance is common, but it is not universal. Check how your lender defines the allowance, how it is calculated and when it resets before paying extra.
What happens when the deal is close to ending?
ERCs often reduce as a mortgage deal progresses. Compare the cost of switching immediately with waiting until the next ERC step-down date or until the charge disappears. Ask your lender for the exact charge on the completion date you are considering rather than relying on an old illustration.
Work out whether paying the ERC is worth it
The biggest mistake is comparing interest rates while ignoring switching costs. Include the ERC, any product or arrangement fee on the new mortgage, legal or valuation costs you must pay, and any mortgage exit or administration fee that applies.
Suppose your mortgage balance is £200,000 and leaving now creates a 2% ERC of £4,000. A new deal would reduce your payments by £300 a month, and there are 18 months until the old deal ends. The simple payment saving over those 18 months is £5,400. That is £1,400 more than the ERC, but a £1,500 product fee, plus other costs, could reverse the result.
This example shows why a lower headline rate does not automatically make an early switch worthwhile. Compare total costs, not just monthly payments. Related guides on remortgaging costs and mortgage deal fees can help you build a fuller comparison before committing.
How to check your exact early repayment fee
Start with your latest mortgage statement, original mortgage offer or online account. Look for the ERC percentage, the dates each charge applies, and any permitted overpayment. If anything is unclear, ask your lender for a redemption statement or current repayment figure for the date you expect to complete.
Ask whether the ERC changes before your planned completion date and whether there is any period near the end of the deal in which the lender allows a switch without the full charge. Policies vary, so do not assume a rule from another lender or mortgage will apply to yours.
You can also start comparing options before your existing deal expires. MoneyHelper suggests beginning the switching process around six months before the end of a deal. You may be able to arrange a new mortgage in advance while timing completion to avoid an unnecessary ERC, subject to the new lender’s offer validity and your circumstances.
Can you avoid an early repayment charge?
The most straightforward way is to complete the remortgage after the ERC period ends. Waiting is not always cheapest, however, particularly if the current rate is much higher than available alternatives. Calculate both scenarios.
If you are moving home rather than simply refinancing the same property, ask whether your mortgage is portable. Porting can sometimes allow you to transfer the existing deal and avoid an ERC, but it is still treated as a new mortgage application and you must meet the lender’s criteria.
If your goal is to reduce the balance before remortgaging, check your penalty-free overpayment allowance first. A guide to mortgage overpayments can help you weigh paying down debt against keeping cash available for fees and emergencies.
FAQ
Do I always pay an early repayment charge when remortgaging?
No. An ERC only applies if your mortgage terms provide for one and your repayment or switch falls within the relevant charge period or exceeds any permitted allowance. Some mortgages have no ERC.
Is the ERC based on the original mortgage or the current balance?
It is often calculated as a percentage of the outstanding balance, but your contract controls the calculation. Some products use different methods or a flat charge, so confirm the figure with your lender.
Can I add the ERC to my new mortgage?
Potentially, but this depends on the new lender, affordability, loan-to-value limits and the amount you are borrowing. Financing the cost also means you may pay interest on it.
Should I wait until my fixed deal ends before remortgaging?
Waiting can remove an ERC, but it is not automatically the cheapest choice. Compare the cost of leaving early with the savings from switching sooner, including all fees on both mortgages.
Conclusion
An early repayment charge when remortgaging is best treated as part of the switching calculation, not as an automatic reason to stay put. Find the exact ERC for your intended completion date, check whether it falls later in the deal, add every other switching cost, and compare that total with the realistic savings from the new mortgage. A lower rate can justify leaving early in some circumstances, but the numbers need to work after the mortgage ERC and other fees are included.