What an early repayment charge is

An Early Repayment Charge (ERC) is a fee lenders apply if you repay some or all of a fixed or tracker-rate mortgage before the deal's agreed term ends — compensating the lender for the interest income they lose. ERCs are common on fixed deals in particular, since lenders often fund these deals in ways that make early exit costly for them too.

How ERCs are typically structured

ERCs are usually a percentage of the outstanding mortgage balance, often reducing each year through the deal — for example, 5% in year one of a five-year fix, tapering down to 1% in the final year. The exact structure varies by lender and product, so check your specific mortgage offer document rather than assuming a standard rate.

When breaking a fix can still make sense

  • Interest rates have fallen substantially since you fixed, and the savings from switching outweigh the ERC over the remaining term.
  • You need to sell the property (a house move, relationship breakdown, or similar) and can't avoid ending the mortgage regardless of the charge.
  • You want to significantly overpay beyond your annual allowance (many fixed deals allow penalty-free overpayments up to 10% of the balance each year) and the numbers work out better despite a partial ERC.

Doing the maths before deciding

Calculate the exact ERC in pounds, compare it against the total interest saved by switching to a better rate over the remaining term of your current deal, and factor in any new arrangement or legal fees. Only proceed if the net saving is clearly positive — a mortgage broker can usually run these numbers precisely.

Porting your mortgage instead

If you're moving home rather than simply switching deals, check whether your current mortgage is "portable" — meaning you can transfer your existing rate and terms to a new property, potentially avoiding the ERC altogether, subject to affordability checks on the new property and loan amount.

Key takeaways

  • Early repayment charges compensate lenders for ending a fixed or tracker deal early.
  • Charges usually taper down over the deal's term rather than staying fixed.
  • Breaking a fix can still be worthwhile if the rate savings clearly outweigh the charge.
  • Check if your mortgage is portable before assuming a house move requires paying an ERC.