Early Repayment Charge FAQ
General information only. This is not financial advice.
Last reviewed: 2026-06-06
What is an early repayment charge (ERC)?
An early repayment charge (ERC) is a penalty fee charged by a mortgage lender when you repay all or part of your mortgage balance above the permitted allowance during a fixed or discounted rate period. ERCs exist because lenders have funded your mortgage at a specific cost of funds — if you repay early, they must reinvest those funds at potentially lower rates and recoup the cost. ERCs typically apply during the initial fixed or tracker period (commonly 2, 3, or 5 years) and then fall away entirely once the deal period ends and the mortgage reverts to the lender's standard variable rate. The ERC is specified in your original mortgage offer and key facts document.
How is an early repayment charge calculated?
ERCs are most commonly expressed as a percentage of the outstanding mortgage balance — for example, 2% of the balance in year 1, falling to 1% in year 2. On a £300,000 mortgage, a 2% ERC would be £6,000. Some products use a tiered structure where the ERC reduces annually: 5% in year 1, 4% in year 2, 3% in year 3, and so on. Occasionally ERCs are expressed in months of interest rather than a percentage (for example, 3 months' interest). The ERC amount is always stated in your mortgage offer — check this document before making any decision about overpayment, remortgage, or early exit.
How much can I overpay without triggering an ERC?
Most mortgage products include a permitted overpayment allowance — typically 10% of the outstanding balance per calendar year — that you can repay above your regular monthly payment without incurring an ERC. If you stay within this allowance, no penalty applies. Overpaying above the allowance in a year triggers the ERC on the excess amount only. The 10% figure is common but not universal — some lenders allow more (or less), and some tracker rate mortgages and standard variable rate mortgages have no ERC at all. Check your specific mortgage terms for the exact overpayment allowance permitted.
When does it make financial sense to pay the ERC and leave early?
Paying an ERC to exit a mortgage deal early can be worthwhile when: the saving from moving to a significantly lower rate (via remortgage or product transfer) outweighs the ERC cost over the remaining deal period; you are selling a property and there is no porting option or the port fails; a major life event (divorce, downsizing, inheritance) requires the mortgage to be redeemed; or the difference between your current rate and the new rate is so large that the payback period on the ERC is short. The calculation is: ERC cost divided by the monthly saving from switching equals the payback period in months. If the remaining deal term is longer than the payback period, switching usually makes financial sense.
Does a product transfer avoid an early repayment charge?
Usually — yes. A product transfer means switching to a new rate with your existing lender, without fully repaying and exiting the current deal. Most lenders process this as an internal deal change and do not apply the ERC to a product transfer. This is one reason why product transfers are popular at deal maturity: you avoid both the ERC and the hassle of a full remortgage. Some lenders allow you to lock in a new product transfer rate up to 6 months before your current deal ends — locking in does not trigger the ERC, and the new rate only starts once the current deal expires. Confirm with your lender whether a mid-deal product transfer (not at expiry) would trigger the ERC.
What happens to the ERC if I move home and port my mortgage?
Porting your mortgage — carrying the existing deal to a new property — avoids triggering the ERC, provided the porting is completed within the lender's permitted porting window (typically 3–6 months from the sale of your existing property). If the port fails (for example, the new property is rejected or affordability does not pass), you will need to fully repay the mortgage and the ERC will apply on the outstanding balance. If you need to borrow more than your existing balance, the additional amount is taken on a new product at current rates; only the ported portion retains the existing rate and remains ERC-protected.
Risk warning
Your home may be repossessed if you do not keep up repayments on your mortgage. Early repayment charges can be significant — always calculate the full cost before deciding to exit a mortgage deal early.
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