Early Repayment Charges (ERCs): How They Work and How to Avoid Them
Your mortgage doesn’t always have to stay the same as your circumstances change. Whether you’re thinking about moving home, securing a new deal or paying off more of your mortgage, understanding early repayment charges (ERCs) can help you make the most of your options.
An ERC may apply if you make certain changes while you’re still within a fixed or discounted deal, but it doesn’t automatically mean switching or repaying early is the wrong move. Sometimes, the savings or flexibility you gain can outweigh the charge.
In this guide, we’ll explain how ERCs work, when they apply and how much they can cost, as well as the different ways you may be able to reduce or avoid them and decide what works best for you.
When might you have to pay an ERC on your mortgage?
You may have to pay an ERC if you pay off your mortgage, switch to a new deal, or exceed your annual overpayment limit before your current introductory or fixed-rate period ends. ERCs typically cost between 1% and 5% of the remaining loan amount.
Common triggers include:
| Leaving your deal early: Switching to a new lender or moving to a new product with your current bank before the tie-in period expires. | |
| Exceeding overpayments: Paying more than your yearly allowance, usually set at 10% of the outstanding balance, will trigger a charge on the excess amount. | |
| Selling your home: Selling a property during the tie-in period without transferring (porting) the mortgage to a new home. | |
| Porting complications: Taking too long to buy a new property, or only porting part of your mortgage when downsizing. | |
How does an ERC percentage scale work?
An ERC percentage scale is a sliding fee structure used by many mortgage lenders. It charges a decreasing percentage of your remaining loan balance if you pay off or leave your mortgage early during an initial fixed or discounted deal period.
- It starts high: The fee percentage is often highest in the first year of your deal, ranging from around 2% on shorter deals up to 5% or more on longer ones.
- It steps down annually: The penalty percentage often drops by around 1% for every year you stay on the deal.
- It ends when the deal ends: The ERC applies throughout the fixed or discounted period and falls to zero once that period is over. Some lenders may waive the charge if you’re within the final few months, but this isn’t universal.
Not every mortgage uses this exact pattern, some lenders apply a flat percentage throughout the fixed period, and some longer fixes carry a higher flat fee for the full term. Always check the specific structure in your mortgage offer document.
How much could an early repayment charge cost you?
An ERC typically costs between 1% and 5% of your remaining mortgage balance. On a £200,000 loan, that would work out at between £2,000 and £10,000, depending on how early you exit the deal.
The cost is calculated using:
| Percentage of balance: Most lenders calculate the charge using the amount you still owe, or the extra amount you overpay. | |
| The sliding scale:The fee percentage usually drops the longer you hold the deal — for example, dropping by 1% each year on a five-year fixed rate. | |
| Overpayment allowances: Most lenders let you pay up to 10% extra per year without triggering any charges, so ERCs typically only apply to the portion above that allowance. | |
When could paying an ERC be worth it?
Paying an ERC can be worth it when the total interest saved by switching to a significantly lower mortgage rate or a better product exceeds the cost of the penalty before your current deal naturally ends.
The maths usually works out in these situations:
Large rate drops: Market rates have fallen far enough below your current fixed rate that your monthly savings recover the ERC within a short break-even timeframe.
Long time remaining with a large balance: Enough months left on your deal for the monthly savings to add up past the lump-sum penalty cost.
Avoiding higher costs: Paying off a costly mortgage prevents a forced move onto an expensive standard variable rate, or offsets other severe financial penalties.
Two key numbers to run:
The rate gap: As a rough guide, a difference of around 1 to 1.5 percentage points or more between your current rate and the new rate is often enough to make paying a fee worth considering.
The break-even point: Divide the ERC fee by your anticipated monthly savings to see how many months it takes to break even. If that number is lower than the remaining months on your deal, switching usually saves money.
Could the savings from a lower mortgage rate outweigh your ERC?
Yes, the monthly savings from a lower mortgage rate can outweigh an ERC. If the total interest saved over time is larger than the fee, you’ll come out ahead financially.
Savings usually win when:
Large loans: Bigger remaining balances save more cash when rates drop.
Long time left: More months left on the deal mean more time to save.
Low ERC fee: A smaller percentage fee is easier to beat.
The fee usually wins when:
Short time left: Few months remaining means small total savings.
High ERC fee: A big percentage fee costs too much upfront.
Small loan: A low balance saves very little total interest.
Can you avoid an ERC by porting your mortgage?
Yes. Porting a mortgage lets you transfer your existing deal to a new property and avoid paying an ERC, provided you move the same loan amount to a home of equal or greater value and pass your lender’s standard approval checks.
When you avoid the ERC:
Like-for-like transfers: Moving the complete balance to a new property of the same price or higher.
Rebate schemes: Some lenders temporarily charge an ERC if there’s a gap between selling and buying, then refund it once the new purchase completes.
When you might still pay an ERC:
Downsizing: If you move to a cheaper home and reduce your total borrowing, you may pay an ERC on the portion of the mortgage you pay off.
Partial porting: If you only port part of your original loan balance.
Application failure: If you fail the lender’s new affordability or property criteria checks and have to break the contract.
What other ways can you avoid or reduce early repayment charges?
You can avoid or reduce ERCs by using your annual penalty-free overpayment allowance, porting your mortgage to a new home, waiting out the final months of your deal, or timing your switch precisely for when the introductory period expires.
| Use annual allowances: Pay up to 10% of your outstanding balance penalty-free each year. | |
| Port the mortgage: Transfer your current deal to a new property when moving home. | |
| Wait for expiry: Wait until the fixed or discount period ends before settling or switching. | |
| Ask for leniency: Some lenders may waive the fee if you're within the final few months of the term, worth checking with your provider. | |
| Calculate net savings: Compare the cost of the ERC against the total interest saved by switching to a cheaper rate. |
Are early repayment charges the same as mortgage exit fees?
No, ERCs and mortgage exit fees are not the same thing. They’re separate costs charged by lenders for different reasons, though people sometimes mix up the terms.
A mortgage exit fee, also known as a deeds release fee, discharge fee or account closure fee, is a charge to cover the administrative cost of closing your mortgage account when the loan is fully paid off. It’s usually a fixed, flat fee, often between £50 and £300 rather than a percentage of the debt. It’s paid whenever you finish your mortgage completely, even if you’ve waited until your deal has officially ended. Not every lender charges one.
What should you check before repaying, switching or moving your mortgage?
Before repaying, switching or moving your mortgage, check your current deal for early repayment charges, look for any product switch or exit fees, review your credit position, and calculate the total cost of the new arrangement against staying on your current rate.
Key financial checks:
- Early repayment charges
- Exit or switch fees
- Your credit report
- The new monthly payment and total fees compared against your current deal
Practical and property checks:
- Valuation costs: Check whether the new lender or product requires a paid property survey.
- Lock-in periods: Confirm how long a new mortgage offer remains valid before it expires.
- Portability rules: Check whether your current mortgage can move to a new property without penalty.
Talk to Heron Financial
Whether it’s worth paying an ERC, or whether porting, waiting or overpaying is the smarter option, usually comes down to running the numbers properly. We can help you work out the break-even, weigh it against your remaining term and balance, and decide whether it’s worth acting now or holding off. No pressure, no jargon, just clear advice.
Frequently Asked Questions
Are all mortgages subject to early repayment charges?
No. ERCs are most common during the fixed or discounted period of a deal. Once you're on your lender's standard variable rate, there's usually no ERC. Some tracker and offset products also let you overpay without penalty.
Can an early repayment charge be added to my new mortgage?
In some cases, yes. If you're remortgaging, certain lenders will let you add the ERC to your new loan rather than paying it as a lump sum. It costs more overall because you pay interest on it, but it can ease the short-term hit.
Do you always pay an ERC if you sell your house?
Not always. If you're still within a fixed or discounted deal and don't port your mortgage, an ERC usually applies. If you port the mortgage to your new home, you may avoid it entirely.
Where can I find my exact early repayment charge?
Your ERC is set out in your original mortgage offer document (also known as the ESIS or KFI). Your lender can also provide an up-to-date figure on request.
What's the difference between an ERC and an exit fee?
Yes. If rates have fallen far enough below your current fix, or if your current deal is about to roll onto a higher standard variable rate, paying an ERC to switch can sometimes save you more overall. It's worth having a broker run the break-even numbers.
Does my shareholding percentage affect how I'm assessed?
An ERC is a percentage-based penalty for leaving a deal early. An exit fee is a fixed administrative charge for closing your mortgage account, usually £50 to £300, and applies whenever you finish the mortgage, even if the fixed period has already ended.