Last reviewed: June 2026
TL;DR- An early repayment charge (ERC) is a fee charged by the lender when a mortgage is redeemed or significantly overpaid within the initial deal period.
- ERCs are typically calculated as a percentage of the outstanding balance, often declining each year through the deal period.
- ERCs can be substantial - 3-5% of the outstanding balance in the early years of a fixed deal.
- Most lenders allow overpayments of up to 10% of the outstanding balance per year without triggering an ERC.
What Is an Early Repayment Charge?
An early repayment charge (ERC) is a fee a mortgage lender charges when the borrower repays all or a significant portion of the mortgage before the end of the agreed deal period. ERCs are most commonly associated with fixed rate mortgages, though some tracker and discount deals also carry them. The charge compensates the lender for the cost of unwinding the fixed rate funding arrangement and for the lost interest income from early redemption.
ERCs apply in several scenarios: selling the property and using the proceeds to repay the mortgage; remortgaging to a different lender during the deal period; making overpayments above the permitted annual threshold; or redeeming the mortgage from other funds during the deal period.
How ERCs Are Calculated
ERCs are typically expressed as a percentage of the outstanding loan balance at the time of redemption. The percentage usually reduces each year through the deal period. A common structure for a 5-year fixed deal:
- Year 1: 5% of outstanding balance
- Year 2: 4% of outstanding balance
- Year 3: 3% of outstanding balance
- Year 4: 2% of outstanding balance
- Year 5: 1% of outstanding balance
On a £250,000 outstanding balance, a 3% ERC is £7,500. This can significantly affect the cost-benefit of remortgaging mid-deal or of selling and moving.
The 10% Annual Overpayment Allowance
Most lenders allow overpayments of up to 10% of the outstanding balance per year without triggering an ERC. This is a significant flexibility - on a £200,000 mortgage, the borrower can overpay up to £20,000 per year without penalty. Overpayments within this allowance reduce the outstanding balance, cut total interest paid and shorten the effective term. Overpayments above the annual threshold in a given year trigger an ERC on the excess amount.
Portable Mortgages and ERCs
Many fixed rate mortgages are portable - they can be transferred to a new property if the borrower moves during the deal period, avoiding the ERC. Porting requires the new property to meet the lender's criteria and a new affordability assessment. If the new property requires a larger mortgage, the additional amount is assessed at current rates and criteria, which may differ from the existing fixed rate terms. Porting is not automatic - the borrower must apply and meet the new property eligibility requirements.
Frequently Asked Questions
Can an ERC be waived by the lender?
Lenders have discretion to waive ERCs in exceptional circumstances, but this is rare. The most common scenario where lenders consider waiving is on death of the borrower, where the estate seeks to sell the property. Some lenders waive ERCs for borrowers in financial hardship as part of their forbearance approach - though this is not standard practice and should not be assumed. The FCA does not require lenders to waive ERCs but expects them to treat customers fairly.
Does porting a mortgage to a new property avoid the ERC?
Yes. Porting transfers the existing fixed rate mortgage to the new property, so the ERC that would apply on full redemption is avoided. The ERC is only triggered if the mortgage is redeemed (repaid) rather than ported. If the new property requires a lower loan amount than the existing mortgage (downsizing), the reduction in the loan amount may trigger an ERC on the excess repaid, even if the remaining balance is ported.
If I sell my house before the fixed rate ends, do I always pay an ERC?
If the mortgage is not portable, or if the lender declines the port application, or if the borrower is not purchasing another property, then yes - the ERC applies on redemption. If the mortgage is portable and the lender accepts the new property, no ERC is triggered. Buyers and sellers in a chain where the seller has a portable mortgage should factor in the timing and eligibility of the port as part of the transaction planning.
Are ERCs the same as exit fees?
No. An ERC is charged for early redemption during the deal period and is calculated on the outstanding balance. An exit fee (also called a deeds release fee or mortgage account fee) is a small administrative charge for closing the mortgage account at redemption, typically £50-£300, regardless of whether an ERC also applies. Both may be payable on redemption during the deal period; the exit fee alone is payable on redemption after the deal period ends and no ERC applies.
