An early repayment charge (ERC) is a fee a lender charges when a borrower repays all or part of a mortgage before the deal period ends. It is usually a percentage of the balance repaid and often falls over the term of the deal.
In one line: An early repayment charge (ERC) penalises repaying or leaving a mortgage deal before its fixed or initial period ends.
How an early repayment charge (ERC) works
ERCs apply during the introductory period of fixed and some tracker deals. The percentage commonly tapers, for example 5% in year one falling to 1% in the final year, and is disclosed in the mortgage offer.
On a 200,000 GBP balance with a 3% early repayment charge, leaving the deal early would cost 6,000 GBP. Many deals allow penalty-free overpayments of up to 10% of the balance each year.
The charge is triggered by remortgaging away, repaying in full from savings, or sometimes by selling without porting the loan.
An early repayment charge (ERC) vs porting
An ERC is the cost of leaving a deal early. Porting moves the same deal to a new property, which can avoid the charge entirely because the loan is not repaid.
Overpayments within the lender's annual allowance usually avoid an ERC; exceeding the allowance can trigger it.
Primary source: FCA: Mortgages and home finance