Table of Contents
- What is an early repayment charge?
- When do early repayment charges apply?
- Can you get a mortgage without an early repayment charge?
- How much is an early repayment charge?
- How to avoid early repayment charges
- Is it worth paying the early repayment charge on a mortgage?
- Why are there early repayment charges?
Early repayment charges should always be considered if you want to overpay on your mortgage, pay it off entirely, or switch to a new mortgage deal before your current one ends.
Read on to find out more about how early repayment charges work and, crucially, how to avoid paying them.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
What is an early repayment charge?
An early repayment charge is a penalty fee that may be payable to your current lender if you want to pay more off your mortgage than is allowed, or leave your existing deal early.
Early repayment charges can run into hundreds and sometimes thousands of pounds, so it’s important to consider them in any calculations you’re making.
If your mortgage deal has an early repayment charge, your lender will outline the potential cost and when it applies in your original mortgage agreement. It should also be shown in your annual mortgage statements.
When do early repayment charges apply?
Some of the main reasons you may have to pay an early repayment charge include if you:
Overpay your mortgage by more than is allowed
If you overpay on your mortgage, you choose to pay more towards your mortgage than the amount you’re obliged to pay each month. This can help you pay off your mortgage faster and save on the amount of interest you’ll pay over the duration of a mortgage overall.
If you have a tracker mortgage, or are paying a standard variable rate (SVR), you can often overpay by as much as you like and not incur any charges. However, with fixed-rate mortgages, there is usually an annual overpayment allowance, typically set at 10%, or occasionally 20%, of your outstanding mortgage balance each year. If you go over this limit, you may have to pay an early repayment charge.
Pay off your whole mortgage early
Paying off your mortgage in full, ahead of when your lender is expecting under the terms of your mortgage, can mean you pay less interest overall. You’ll also be mortgage-free sooner. However, the savings you make need to be weighed up against the early repayment charges you may face for doing so.
Remortgage before your current deal expires
While it’s possible to remortgage before the initial deal on your current mortgage ends, you may need to pay an early repayment charge to your existing lender for exiting their deal early. This can apply if you’re currently locked into a fixed-rate mortgage or any other type of introductory rate deal. However, some mortgages may still have early repayment charges after a fixed-rate or introductory period ends.
Move house
If you’re moving, you may have to pay an early repayment charge for ending your current deal if you can’t, or don’t want, to port your mortgage to the next property. A charge may also still be payable if you only take a part of your existing mortgage with you. An example of when this could happen is if you’re downsizing.
Can you get a mortgage without an early repayment charge?
Yes, it is possible to get a mortgage without an early repayment charge. While most fixed-rate mortgages have early repayment charges, some fixed-rate deals don’t.
Many tracker mortgages don’t have early repayment charges, but there are some that do. It is rare for early repayment charges to apply if you’re on your lender’s standard variable rate, or SVR, though the rates payable on an SVR are usually higher than those available elsewhere. However, other types of variable rate mortgage, such as discount mortgages and capped mortgages, will often have early repayment charges.
It’s essential to check the terms and conditions of any mortgage for details of early repayment charges, and when they may apply.
» MORE: Compare mortgage rates
How much is an early repayment charge?
Early repayment charges on mortgages are typically charged at between 1% and 5% of your outstanding mortgage balance. Depending on the size of your mortgage and the rate that applies, an early repayment charge can run into several thousands of pounds.
Some mortgages also have early repayment charges that gradually reduce the further into your mortgage deal you get. For example, for a five-year fixed-rate mortgage, the early repayment charge may be 5% of your outstanding mortgage loan in the first year of the deal, 4% in the second, 3% in the third, 2% in the fourth and 1% in the fifth year, as it’s nearing an end.
Early repayment charge example
The table below gives an idea of the early repayment charge payable in each year of the deal, based on an assumption that an initial outstanding mortgage balance of £200,000 drops by £10,000 each year, due to the monthly repayments that would be made.
| Outstanding mortgage | Percentage charge | Early repayment charge | |
| Year 1 | £200,000 | 5% | £10,000 |
| Year 2 | £190,000 | 4% | £7,600 |
| Year 3 | £180,000 | 3% | £5,400 |
| Year 4 | £170,000 | 2% | £3,400 |
| Year 5 | £160,000 | 1% | £1,600 |
How early repayment charges are structured will differ between lenders and deals.
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How to avoid early repayment charges
The best way to avoid an early repayment charge on your mortgage is to be clear on the terms and conditions of your agreement and work within them. Here are some steps you can take to avoid paying early repayment charges.
Stay within the overpayment limit
The maximum you can overpay without incurring an early repayment charge is often 10% of your outstanding mortgage balance each year but always check with your lender to be sure.
Wait for the deadline
There is usually a point in your deal after which early repayment charges won’t apply. This is often tied in with the end of your fixed-rate or introductory tracker-rate period, though sometimes the charges can apply for longer. If you want to remortgage, this doesn’t stop you from starting the process earlier.
It’s sensible to start looking for new mortgage deals from around six months before your current deal is due to end. That way, you can be prepared to move over to your new deal as soon as it’s possible to do so without having to pay a penalty.
» MORE: When can you remortgage?
Stay with your current lender
If you’re remortgaging, and nearing the end of your current deal, some lenders may be willing to waive the early repayment charges it would normally charge if you take out a new deal with them.
However, any new deal must be right for you. And if there’s a lower rate available with a different lender, it could still work out better for you financially if you choose to pay the charge and switch elsewhere.
» MORE: Should you remortgage with the same lender?
Consider a mortgage without early repayment charges
Most types of mortgages are available with no early repayment charge, including fixed-rate mortgages, but make sure you consider the mortgage as a whole and find one that is best suited to you. In particular, be aware that interest rates and fees may be higher on such deals.
Port your mortgage when you move
If you’re moving home, some mortgage lenders may let you transfer, or port, your current deal to another property without paying an early repayment charge. The main consideration is that there will often be very specific rules around porting, and some instances when an early repayment charge may still apply, for example, if you’re borrowing less and reducing your mortgage amount by more than the annual overpayment allowance.
Choose a shorter initial deal
If you’re planning to move soon, you may want to think about getting a mortgage with a shorter initial deal period, which will have expired by the time you want to sell. Alternatively, it may be worth considering a mortgage with no early repayment charges at all. Similar can also apply if you think mortgage rates could fall, and want to keep your remortgaging options open to shop around for a better deal while avoiding early repayment charges.
» MORE: How to pay off your mortgage early
Is it worth paying the early repayment charge on a mortgage?
Reducing your outstanding mortgage or securing a lower mortgage rate is always worth considering. However, if this involves paying an early repayment charge, the extra cost needs to be included in any calculations. If the penalty charge cancels out the savings you’d make on interest payments, it may not make sense financially.
If you want or need to move urgently, and porting isn’t an option, you may have little choice other than to pay the early repayment charge to secure your move. However, if you’re close to the end of your deal, and able to wait until there’s no fee, the savings could be substantial.
If you’re in any way uncertain, a mortgage adviser can help you work out the best option for your circumstances.
» MORE: Mortgage overpayment calculator
Why are there early repayment charges?
Mortgage early repayment charges are there to make sure lenders aren’t left out of pocket if a borrower ends their mortgage agreement earlier than planned. The charge allows a lender to recover its costs and at least some of the interest it would have otherwise received if you weren’t cutting the deal short.
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