Early Repayment Charge: Should You Pay It or Wait?
An early repayment charge is a fee your lender applies if you repay all or part of your mortgage before your current deal ends. It usually costs 1% to 5% of the amount you repay, and it falls each year you stay in the deal. Most lenders let you overpay 10% of the balance each year without triggering it.
That is the definition. The question every other page avoids is the one you came here with: pay the charge and switch now, or wait? Below is the arithmetic, at today’s rates, including the exact month at which paying the charge stops being a loss.
Written by Jake Stott, Knox Mortgages. Published 14 August 2026. Last reviewed 14 August 2026.
What are early repayment charges on a mortgage?
An early repayment charge, often shortened to ERC, is a contractual fee compensating your lender for interest it loses when you leave a fixed or discounted deal early. Lenders fund fixed rates in advance, so an early exit breaks their funding assumption. It is a pre-agreed cost, not a punishment.
Under FCA rules (MCOB 12.3), an ERC must be a reasonable pre-estimate of the lender’s cost of early repayment and must be disclosed clearly in your mortgage illustration, the ESIS. Four things typically trigger it:
- Remortgaging to another lender before your deal ends
- Selling the property and repaying without porting
- Repaying in full, for example with an inheritance
- Overpaying by more than your annual allowance
How much do you get charged if you pay off your mortgage early?
Most charges sit between 1% and 5% of the amount repaid, and the percentage almost always steps down for each year you remain in the deal. A two year fix commonly runs 2% then 1%. A five year fix commonly runs 5%, 4%, 3%, 2%, 1%. Some lenders instead apply a flat percentage for the whole term, which is worse for you in the later years.
These are typical market structures, not guarantees. Your exact taper is lender-specific and written in your ESIS.
Typical taper on a five year fix
| Year of deal | Typical ERC | Cost on a £250,000 balance |
|---|---|---|
| Year 1 | 5% | £12,500 |
| Year 2 | 4% | £10,000 |
| Year 3 | 3% | £7,500 |
| Year 4 | 2% | £5,000 |
| Year 5 | 1% | £2,500 |
Typical taper on a two year fix
| Year of deal | Typical ERC | Cost on a £250,000 balance |
|---|---|---|
| Year 1 | 2% | £5,000 |
| Year 2 | 1% | £2,500 |
What the charge costs at each percentage
| Balance | 1% | 2% | 3% | 4% | 5% |
|---|---|---|---|---|---|
| £100,000 | £1,000 | £2,000 | £3,000 | £4,000 | £5,000 |
| £150,000 | £1,500 | £3,000 | £4,500 | £6,000 | £7,500 |
| £200,000 | £2,000 | £4,000 | £6,000 | £8,000 | £10,000 |
| £250,000 | £2,500 | £5,000 | £7,500 | £10,000 | £12,500 |
| £300,000 | £3,000 | £6,000 | £9,000 | £12,000 | £15,000 |
| £400,000 | £4,000 | £8,000 | £12,000 | £16,000 | £20,000 |
Is the charge based on your outstanding balance or the original loan?
It depends on the lender, and almost nobody tells you this. Some apply the percentage to the balance outstanding on the day you repay. Others apply it to the original advance, the sum you borrowed at the start.
Take an original advance of £300,000 now reduced to £250,000. A 3% charge on the outstanding balance is £7,500. The same 3% on the original advance is £9,000. One line of small print, £1,500 of difference. A third variant charges only on the portion repaid above your overpayment allowance. Confirm which basis applies before you model anything.
Is it worth paying an early repayment charge?
Sometimes, and it comes down to one comparison: the charge plus any product fee against the interest you save by moving to a cheaper rate for the months left on your deal. If the saving is larger, you switch. If it is smaller, you wait.
A quick test first. Multiply the rate gap by the years left on your deal. If that figure beats your ERC percentage plus the product fee as a percentage of your balance, model it properly. If it falls well short, wait.
Worked example: when paying a £5,000 charge makes you £1,955
Assume a £250,000 balance on a five year fix taken in 2023 at 6.09%, with 24 months left and 20 years of term remaining. The property is worth £420,000, so the loan sits near 60% loan to value. The ERC is in year 4 of the taper at 2%.
- Early repayment charge: 2% of £250,000 = £5,000
- Product fee on the new deal: £1,099
- Total cost to switch: £6,099
The best five year fix at 60% loan to value on 14 August 2026 is 4.46%. Moving from 6.09% to 4.46% cuts the monthly payment from £1,804 to £1,576, a saving of £228 a month.
Over the 24 months left, the interest saved is £8,054. Against a cost of £6,099, the borrower ends up £1,955 ahead. The cumulative saving passes the cost in month 19, leaving five months of clear profit before the old deal would have ended anyway.
Change one variable and it flips. In year 3, with a 3% charge, the cost becomes £8,599 and the switch no longer pays inside the deal period. The taper year you are in usually decides the answer.
One caveat on the comparison rate. Base rate has been held at 3.75% since 30 July 2026, but average rates sit well above best buys: Moneyfacts puts the average two year fix at 5.63%, the average five year fix at 5.67% and the average standard variable rate at 7.13%. Model the rate you would actually qualify for, not a headline.
Can I avoid an early repayment charge?
Yes, in most cases, and usually without paying anything. Five routes, the first most overlooked:
- Take a product transfer with your existing lender. Switching rate with your current lender normally avoids the ERC entirely, because you are not repaying the loan. See product transfer versus remortgage.
- Time the remortgage to land the day the charge ends. Offers are typically valid three to six months, so start roughly six months out and set completion for the first ERC-free day.
- Port the mortgage. Same-day completions are cleanest, since a gap between sale and purchase can trigger the charge before any refund.
- Stay inside the overpayment allowance, commonly 10% a year.
- Choose a product with no ERC. Trackers and some variable products have none, usually at a higher or less certain rate.
If your deal ends soon, read what happens when your fixed rate ends and start the remortgage process early.
Will I be charged if I overpay on my mortgage?
Only if you exceed your annual allowance. Most lenders permit 10% of the balance per year without charge, though some calculate it on the balance at the start of the year and some on the original advance.
On a £200,000 balance with a 10% allowance, you can overpay £20,000 penalty-free. Overpay £30,000 and only the excess £10,000 is charged, at your current ERC rate. At 3%, that is £300. The allowance resets on your deal anniversary, not in January, so splitting a large overpayment across that date can avoid the charge entirely.
When will a lender waive an early repayment charge?
Some lenders waive or refund the charge in defined circumstances, but this is discretion rather than entitlement. Grounds that appear across the market include death of a borrower, critical illness, relationship breakdown, redundancy, military redeployment and moving to become a full-time carer.
Several lenders also build in structural exemptions: no charge in the final month of the deal, no charge when switching within the last three months, and a refund where a port completes the same day. Porting windows vary, some up to 180 days. None of it is automatic, so ask your lender in writing before you commit.
Is there a downside to paying off a mortgage early?
Beyond the charge, yes. If your rate is lower than the return you could get elsewhere, repaying costs you the difference. Money used to clear a mortgage is also illiquid, and releasing it later means a new application at whatever criteria apply then.
For most people on a rate above 5%, repaying is still the better risk-adjusted return. The point is that it is a comparison, not an automatic win. Before committing a lump sum, check how much you can borrow and how lenders calculate affordability.
What if you think the charge is unfair?
Complain to your lender first. It has eight weeks to issue a final response. If the outcome is unsatisfactory, or eight weeks pass without one, refer the case to the Financial Ombudsman Service, free of charge, within six months of that response.
Successful complaints usually turn on disclosure or calculation rather than the charge existing at all: it was not clearly set out in the ESIS, the wrong taper year was applied, or a same-day port was not treated as one. Keep the paperwork.
How a broker changes the answer
Notice what is missing from page one of Google for this search: an adviser. Lender pages are written for their own customers, and comparison sites sell a quote form. Neither can see your ESIS or your taper year. A whole-of-market broker runs the charge against the real saving across every lender, including the product transfer your own lender will offer, and says plainly whether to move or wait. Often the answer is wait. See mortgage broker versus bank.
The same maths applies to buy-to-let mortgages, where tapers are often flatter, and to self-employed remortgage timing. On a long term fixed rate, this charge is the trade-off you agree in advance.
Frequently asked questions
What is an early repayment charge?
An early repayment charge is a fee of typically 1% to 5% of the amount repaid, applied when you repay all or part of your mortgage before your fixed or discounted deal ends. It compensates the lender for lost interest and is set out in your ESIS.
How much is an early repayment charge on a £200,000 mortgage?
Between £2,000 and £10,000. At 1% it is £2,000, at 3% it is £6,000 and at 5% it is £10,000. The percentage usually falls for each year you remain in the deal.
Is it worth paying an early repayment charge to remortgage?
Only when the interest saved over the months left on your deal exceeds the charge plus any product fee. In the example above, a £5,000 charge plus a £1,099 fee was recovered in month 19 of 24 and left the borrower £1,955 ahead. In year 3, it would not have paid.
Can I avoid an early repayment charge?
Yes, usually. Take a product transfer with your existing lender, time your remortgage to complete the day the charge ends, port when you move, stay within your annual overpayment allowance, or choose a product with no ERC such as a tracker.
Do I pay an early repayment charge if I sell my house?
Yes, unless you port the mortgage to the new property or your deal has ended. Porting on the same day as completion normally avoids it, and some lenders refund the charge if the purchase completes within a set window, commonly up to 180 days.
How much can I overpay without a charge?
Typically 10% of your balance each year. Check whether your lender calculates this on the balance at the start of the deal year or on the original advance, and note the allowance resets on your deal anniversary rather than in January.
Is the charge based on my current balance or the original loan?
It varies by lender, and it matters. On an original advance of £300,000 now reduced to £250,000, a 3% charge is £7,500 on the outstanding balance but £9,000 on the original advance. Check the ERC clause in your ESIS.
Can an early repayment charge be refunded?
Yes. Some lenders automatically refund it where a port completes within their permitted window. Separately, you can complain if it was wrongly calculated or poorly disclosed. The lender has eight weeks to respond, after which you can refer the case to the Financial Ombudsman Service.
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