Early repayment charges (ERCs) on mortgages

An early repayment charge, usually shortened to ERC, is a fee a mortgage lender can require if you repay your mortgage early, or pay more than your agreed overpayment allowance. The Financial Conduct Authority's glossary defines it as "a charge levied by the mortgage lender on the customer in the event that the amount of the loan is repaid in full or in part before a date or event specified in the contract"¹. In everyday terms: if you get out of a deal before the date your mortgage offer names, the lender can bill you for it.

The charge exists because a lender that offered you a fixed or discounted rate has planned its finances around you keeping that loan for the whole deal period. The Equity Release Council explains the principle in terms that apply to lending generally: charges "are there to cover the losses the provider may incur when a borrower repays sooner than was expected"². If you repay a five-year fix after one year, the lender has given up four years of the income it priced the deal around.

The size of the charge is set in your mortgage offer, not negotiated at the time you leave. That is why the figures matter before you sign up, not only when you want out. Most charges run between 1% and 5% of the balance, step down each year of the deal, and disappear once you reach the lender's standard variable rate.

What an early repayment charge is and why lenders charge it

An early repayment charge is the price of leaving a mortgage deal before its incentive period runs out. Teachers Building Society's jargon guide puts the two triggers plainly: "If you repay your mortgage early, or make an overpayment of more than your overpayment allowance, an early repayment charge may be payable"⁸. Halifax describes the same thing from the borrower's side: with some mortgages "there may be a charge if you repay all or part of your mortgage within a certain period of time"⁹.

The charge is attached to the deal, not to the mortgage itself. A mortgage can run for many years, but the ERC only bites during the initial period, typically two, five or ten years, when the rate is fixed, tracked or discounted. Once that period ends and you move onto the lender's standard variable rate, the charge normally falls away, which is why so many borrowers time a remortgage or product transfer for the final weeks of a deal.

Why lenders charge it comes down to how fixed and capped rates are funded. When a lender offers you a rate for five years, it has matched that promise against its own funding for five years. Repay early and the lender faces the cost of unwinding that arrangement. The Equity Release Council's explanation of its own members' charges, that they cover "the losses the provider may incur when a borrower repays sooner than was expected", describes the same commercial logic that applies across the mortgage market². A charge is not a penalty in the everyday sense; it is a pre-agreed price for breaking a term you accepted in return for the rate.

That does not mean every mortgage carries one. Independent guidance notes that ERCs "are most commonly found on fixed-rate mortgages with initial terms of five years or longer"¹⁰. Shorter deals, standard variable rates and some flexible mortgages carry no charge at all. The only reliable answer for your own mortgage is the offer document, which must set out the charge schedule before you commit.

How much an ERC costs: usually 1% to 5% of the balance

Across lenders and independent guides, the typical range is consistent: an ERC is usually between 1% and 5% of the outstanding balance. Lloyds Bank's guidance for first-time buyers describes the charge as "usually calculated as a % of the mortgage loan or outstanding balance, often between 1% and 5%"³. HSBC's overpayment guidance gives the same range¹¹, as does Principality Building Society, which says that typically "you can expect to pay between 1% and 5% of your outstanding balance if you repay in full early"⁵. NatWest's remortgage guide and TSB's remortgage page both quote the same 1% to 5% range¹².

The charge is normally a percentage of what you still owe, not of what you originally borrowed. Which?'s guide to remortgaging explains that "an ERC is generally calculated as a percentage of the outstanding loan and so can be a significant outlay", and gives the example that a 5% ERC on a £200,000 mortgage works out at a £10,000 penalty charge⁶. Yorkshire Building Society adds that the amount "depends on a number of things including the balance on your mortgage and how much you want to pay early"¹⁴.

Most charges step down over the life of the deal. Which? describes the typical shape of a five-year fix: ERCs "often start at around 5% of the balance in the first year, before reducing by 1% each year thereafter"⁴. Its worked example on a £200,000 mortgage shows 5% (£10,000) in year one, falling to 1% (£2,000) in year five⁴. Which?'s guide to porting gives the same pattern in words: "the ERC might be 5% of your mortgage balance in year one, 4% in year two, 3% in year three, and so on"¹⁵.

Not every lender follows the 5-4-3-2-1 pattern. Dudley Building Society's five-year interest-only fix, for example, charges 4% of the current balance in the first year, 3% in the second, 2% in the third and 1% for the remaining two years¹⁶. On ten-year fixes, Which? found competitive deals charging 5% of the outstanding balance in years one and two, 3% in years three to five, and 1% in years six to ten¹⁷. The practical effect is the same in every case: the later in the deal you leave, the smaller the charge, and in the final year it may be 1% or nothing.

The structure of the percentage matters less than its cash value. A 3% charge on a large balance can dwarf a 5% charge on a small one, and Which? warns that on moving home these fees "can add up to tens of thousands of pounds"¹⁵. Before deciding anything, find the charge schedule in your mortgage offer and turn the percentage into pounds.

When an ERC applies: remortgaging, switching, repaying or overpaying early

The charge is triggered by ending or changing the deal early, and that can happen in more ways than the obvious one. The main situations, drawn from lenders' own guidance, are:

• Remortgaging to a new lender during the deal period. Which? notes that "if you remortgage during the initial fixed or tracker period of your mortgage, then you will likely need to pay an early repayment charge"⁶. StepChange makes the same point for people remortgaging to clear debts: "There is often an early redemption fee if you remortgage early"¹⁸.
• Switching to a new deal with the same lender. Yorkshire Building Society warns that "you may need to pay an ERC if you decide to repay your mortgage early or switch to a new deal before your current deal ends"¹⁹, and Cambridge Building Society lists wanting to exit an existing deal early among the triggers²⁰.
• Paying the mortgage off in full. Kensington Mortgages notes the charge "is typically applied when the mortgage is repaid in full, whilst the interest rate is still in a fixed period"²¹. This includes repaying with savings, an inheritance or the proceeds of a house sale.
• Overpaying beyond the allowance. Nationwide states that an early repayment charge "may apply if you go over the overpayment allowance"²², and the same rule appears across the market, as the next section explains.
• Changing the mortgage itself. Coventry Building Society notes that "Early Repayment Charges (ERCs) may be payable if you change your repayment type", for example moving from repayment to interest-only²³. Nationwide's list of triggers also includes delayed porting and porting only part of a mortgage²⁴.

Experian's guide to equity loans makes the general point that applies to any early switch: "Unless you're coming to the end of an existing deal, you'll need to pay an early repayment charge to take out a new mortgage"²⁵. Which?'s guide to mortgage types adds the selling-a-house angle: when you sell, "you can use the proceeds of the sale to pay off the mortgage, although you may incur an early repayment charge if you're still in the introductory period"²⁶.

The one state where the charge does not apply is after the deal has run its course. Which?'s guidance is categorical: "An ERC will not usually be charged once you have finished this initial period and moved onto your lender's standard variable rate"⁶. That is why the months before a fixed rate or tracker rate ends are the natural window for arranging a new deal, and why our page on what to do when your fixed rate ends is worth reading ahead of time.

Leaving a fixed rate early to move home

Moving home is the situation where ERCs catch people out most often, because selling a house almost always means repaying the mortgage on it. Whether a charge follows depends on whether your deal is portable. A portable mortgage can be carried across to the new property, keeping the same rate and the same deal period. Which? notes that "you can sometimes avoid ERCs by getting a portable mortgage, which you can take with you when you move home"²⁷.

Porting is not always seamless, and lenders' own terms show where charges can still arise. Nationwide states that an early repayment charge may apply "when you're only porting part of your mortgage" or "there's a delay between the sale of your existing property and the purchase of your new one"²⁴. Yorkshire Building Society describes what happens next: "In certain circumstances when porting your mortgage deal, you may need to pay an Early Repayment Charge (ERC). However your lender may refund depending on when your new mortgage completes"²⁸. So a charge paid at the point of sale is not always the end of the story; asking your lender in writing how its refund works is the way to pin this down before relying on it.

If your mortgage is not portable, the options narrow. Which?'s advice is that "you could pay any early repayment charges (ERCs) on your current deal and switch to a new one, or, if the ERC is prohibitively high, stay put in your current property until your fixed term ends"¹⁵. That second option is rarely welcome, but on a large balance in year one of a five-year fix the charge can run to five figures, and Which? warns these fees "can add up to tens of thousands of pounds"¹⁵.

The practical steps, before you put your home on the market:

1. Find the ERC schedule in your mortgage offer and note the percentage for the current year of the deal.
2. Ask your lender whether the deal is portable, and on what conditions.
3. If porting, ask what happens if the sale and purchase do not complete on the same day, and whether any charge is refunded.
4. Turn the percentage into a cash figure so you can weigh it against the cost of the new deal you would need.

The dedicated page on porting a mortgage when you move home covers the process in full.

Overpaying without a charge: the 10% annual allowance

Most mortgages let you pay down the balance faster without triggering any charge, up to an annual allowance. The typical allowance is 10% of the mortgage balance each year. Which?'s guide to mortgage payments states that "most mortgages will allow you to overpay a certain amount, usually around 10% per year, without incurring any additional charges"²⁹. Principality's guidance agrees: "Most lenders let you overpay up to 10% of your mortgage balance each year without penalty"³⁰. The same 10% figure appears in TSB's fee guide, which adds that "some products have a higher limit"³¹, in Nottingham Building Society's mortgage guidance³², and in Which?'s guide to longer mortgage terms³³.

The allowance is usually 10% of the outstanding balance, not of the original loan, and it normally resets each year: what you do not use in one year does not carry forward. Go above it and the charge applies to the excess. Nationwide's overpayments page states it plainly: "If you go over this allowance, you may have to pay an Early Repayment Charge (ERC)"²².

Three points are worth checking in your own terms before making a large overpayment:

• What the percentage is measured against. Balance or original loan changes the cash amount considerably on a mortgage that has been running for years.
• When the year runs from. Some lenders use the mortgage year, others the calendar year.
• Whether the allowance applies per mortgage or per borrower, which matters on joint mortgages.

Overpaying within the allowance is one of the few ways to shorten a mortgage and cut the interest bill without touching the deal, and the page on overpaying your mortgage works through the mechanics, while overpaying the loan or saving the money instead compares the two uses of the same cash.

Paying the ERC: upfront or added to a new mortgage

If a charge does apply, how you settle it depends on why it arose and which lender is involved. Principality's guidance describes the common case of switching lender: "If you switch to a new lender early, the ERC is usually added to your outstanding mortgage balance. You can pay this fee upfront or add it to the new mortgage balance"⁵. Adding it to the new loan avoids finding the cash at completion, but the charge then attracts interest for the whole of the new mortgage term, so the true cost is higher than the headline figure.

Nationwide's terms show the opposite treatment in other cases: for switching from an existing Nationwide deal, "you'll need to pay the charge upfront. It can't be added to your mortgage balance"³⁴. For overpayments above the allowance, Nationwide states the charge "will be added to your mortgage and charged interest, or paid straight away in branch or by cheque"³⁴. The same lender can therefore treat different triggers differently, which is another reason to read your own offer rather than general guidance.

Where the charge arises from moving home, the sale proceeds usually settle it at completion, since the old mortgage is repaid from the sale before the new one starts. Where porting is involved, Yorkshire Building Society's point about refunds depending on when the new mortgage completes is the detail to pin down with the lender in advance²⁸.

ERCs on lifetime mortgages and equity release

Early repayment charges work differently on equity release, and the differences are large enough to change decisions. A lifetime mortgage, the main form of equity release, is designed to run until death or a move into long-term care, so any repayment before then is "early" in a much stronger sense than on a residential mortgage.

The Equity Release Council explains that plans vary widely: "some have no early repayment charges, some apply the charge to a specific number of years after the plan was taken out, and others apply the charge throughout the life of the plan"³⁵. Its FAQ on early repayment adds: "If you repay a Lifetime Mortgage early you may have to pay an Early Repayment Charge", and notes that "charges can be quite expensive, and the maximum you might have to pay is given before you take the plan out"³⁶. Which? has reported that "in some cases, early repayment charges can be as high as 25%"³⁷, a scale with no parallel in the residential market.

Some lifetime mortgage charges are linked to gilt prices rather than fixed percentages, which means the amount can move with financial markets and is not always knowable in advance. The Equity Release Council notes that "there are some instances when neither a fixed nor gilt-linked ERC will apply, such as a compassionate window"², a point worth raising with any provider before taking a plan.

Two protections are worth knowing. First, Equity Release Council standards provide that "no early repayment or similar charge may be made in respect of the property agreed to be the customer's main residence at the time the lifetime mortgage contract was entered into" where the customer moves to a suitable alternative property³⁸. Moving home does not, in other words, force you to repay a compliant lifetime mortgage. Second, the Council's standards, refreshed in May 2025, include a product standard waiving early repayment charges for customers moving permanently into long-term care.

Because the stakes are high, StepChange lists early repayment charges among the things to check when choosing a plan³⁹, and Which? warns that "changing your mind can prove costly as repaying your loan early often triggers an early repayment charge"⁴⁰. The pages on repaying equity release early and the downsides of releasing equity go further.

Early repayment charge or exit fee: the difference

Two charges can apply when a mortgage ends, and they are different things. The early repayment charge is the percentage-based price of leaving a deal early. The exit fee, sometimes called a redemption or deeds fee, is an administration charge for closing the mortgage account, and it can apply even when the mortgage ends at the natural end of its term with no ERC at all.

Furness Building Society's guide to home mover mortgages describes both: "you may have to pay an exit fee and early repayment charge to leave your current deal and this could range from 1-5% of your mortgage value"⁴¹. The HomeOwners Alliance's jargon guide notes that an early repayment charge "could be either a flat percentage of the total loan or a fixed fee"⁴², and Serve and Protect Credit Union's glossary defines ERCs as "fees charged by mortgage lenders when you repay part or all of your loan early"⁴³. The exit fee sits alongside that, charged for the paperwork of redemption itself.

In practice, the distinction matters at two moments. When a deal ends and you repay or remortgage, the ERC should be zero but the exit fee may still be payable. When you leave a deal early, both may appear on the redemption statement, and it is worth checking that each matches what your offer promised. The page on mortgage fees and charges sets out the full list of costs around taking and ending a mortgage.

Where the protection stops

There is no fixed legal cap on early repayment charges, but the rules do set boundaries. The FCA's Mortgage Conduct of Business rules state that an early repayment charge must be "able to be expressed as a cash value; and (2) a reasonable pre-estimate of the costs as a result of the customer repaying the amount due before the contract has terminated"⁷. A charge that is a genuine penalty rather than a pre-estimate of the lender's costs would not meet that test.

Before you take a mortgage, the rules on disclosure work in your favour. The Equity Release Council describes the requirement in its sector, and the same principle applies to regulated mortgages: the explanation "must state, in cash terms, the maximum amount that you might be expected to pay"⁴⁴. No deal has to be accepted without the worst-case charge being known in pounds.

Where a lender gets it wrong, the Financial Ombudsman Service can intervene. One published case study involved a borrower, Ole, whose plans were upset by a charge nobody had flagged: "There was a £1,500 early repayment charge that hadn't been taken into account"⁴⁵. The lesson cuts both ways: a charge that was not properly disclosed can be challenged, and a charge that was disclosed but overlooked by the borrower is much harder to dispute.

The protection stops short of letting you out of a charge simply because it is unwelcome. Once the schedule is in your signed offer, the percentages and the dates are binding. The realistic protections are the ones that come earlier: reading the charge schedule before signing, using the 10% overpayment allowance, timing a move to the end of a deal, and checking porting terms before putting a home on the market. The page on mortgage rules, your rights and protection sets out the wider framework.