Early repayment charges
How is an early repayment charge calculated?
An early repayment charge sounds like fine print, but it is usually the single biggest number in any decision to leave a fixed deal early. The good news is that it is not a mystery. It is a percentage, written in your offer, and you can turn it into pounds in under a minute once you know where to look.
What it is
An early repayment charge, or ERC, is what your lender charges if you pay off more of a fixed deal than the rules allow before the fixed period ends. It is there to recover the cost the lender took on by guaranteeing your rate. You meet it if you remortgage early, move to a new deal early, or pay off a large lump sum above your yearly allowance.
How the number is built
The charge is a percentage of the balance you repay, and on a fixed deal that percentage almost always steps down each year. A five-year fix might read 5% in the first year, then 4%, 3%, 2% and 1%. A two-year fix is often 2% then 1%. The exact figures and the exact dates are in a small table in your mortgage offer, usually titled "early repayment charge".
Two details catch people out. First, the charge is normally on the balance you still owe at the time, not the amount you first borrowed, so it shrinks as you pay down. Second, the step-down happens on a specific calendar date, not loosely "next year", and crossing that date can change the cost by thousands.
A worked example
Suppose you owe £180,000 and your offer says the charge is 3% until 30 June, then 2% after it. Repay today and the charge is 3% of £180,000, which is £5,400. Wait until 1 July and the same balance is charged at 2%, which is £3,600. Nothing about your situation changed except the date, and the cost fell by £1,800.
That is why the step-down date matters as much as the percentage. It is the cheapest saving in the whole process, and it asks nothing of you except knowing when it lands.
Where to find your schedule
Look in your original mortgage offer letter, in the section headed early repayment. Many lender apps also show it under the deal or product details. If you cannot find it, your lender has to tell you when you ask, so call and ask for your ERC schedule and the dates each tier applies. Our help page lists exactly where each figure tends to live.
Turning it into a decision
The charge on its own does not tell you whether to leave. That depends on whether the interest you would save by switching to a lower rate beats the charge plus any new fee. Because the charge falls over time while a rate gap can widen, there is often a specific day when leaving stops costing you and starts paying. We cover that sum in should you break your fix early.
Frequently asked questions
How much is an early repayment charge?
It is a percentage of the amount you repay early, set in your mortgage offer. On fixed deals it is often between 1% and 5%, and it usually falls by about one percentage point for each year you are into the deal.
Is the early repayment charge based on the original loan or the current balance?
Almost always the balance outstanding at the moment you repay, not the amount you originally borrowed. Check the wording in your offer, as a few lenders phrase it differently.
Can I avoid an early repayment charge?
You can usually overpay up to 10% of the balance each year with no charge, wait until the fixed period ends, or in some cases port your existing deal to a new property. Whether the charge is worth paying to switch is a separate calculation.
Work out your own charge
Put your balance and your ERC schedule into the free timeline. It works the charge month by month, in pounds, and marks the day it steps down. Two minutes, nothing stored.
Examples are illustrative and rounded. Your own mortgage offer and lender confirm your actual figures and dates. This is information, not financial advice. For advice on your circumstances, speak to a mortgage adviser regulated by the FCA.