What is an early repayment charge (ERC)?

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An early repayment charge (ERC), is a fee for repaying your mortgage early. And is common when paying off your mortgage during the introductory fixed rate period, where there is a lower interest rate.

You will technically be paying your mortgage off when you want to remortgage, that is, to replace your mortgage with a new, better mortgage. You might also want to pay your mortgage off when you move home.

ERCs are normally a percentage of the mortgage amount, so can be quite a lot, and often they would step down every year of the introductory period, so on a mortgage with a 5 year introductory period, you might see the first year as a 5% charge, the second year as 4%, third year as 3%, fourth year as 2% and the last year as 1% – and then after the fixed rate period ends you are free to remortgage with no charge at all.

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Always factor this in when looking to remortgage, as it normally doesn’t make financial sense to remortgage when paying an early repayment charge. Always check with a mortgage broker beforehand.

Learn more about mortgages.

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