What is an early repayment charge (ERC)?

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.

Nuts About Money tip

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.

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