Early repayment charges
In this guide
What is an early repayment charge?
When you take out a mortgage, you borrow money from a lender and repay it over an agreed period of time. Usually you make monthly repayments that could be fixed or variable, depending on your mortgage type. If you decide to repay your full balance early or repay more than the lender allows, you may have to pay an early repayment charge (ERC).
When might you pay an early repayment charge?
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You overpay on your mortgage
Most lenders let you overpay up to 10% of your mortgage balance each year without penalty. If you pay more than this, you may be charged an ERC.
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You remortgage or switch your deal early
If you switch to a new deal before your current mortgage - perhaps to lower your monthly payments - you may have to pay an ERC.
If you switch to a new lender early, the ERC is usually added to your outstanding mortgage balance. You can pay this fee upfront or add it to your new mortgage balance.
If you switch your deal early but stay with the same lender, you'll need to pay the ERC with your own money. -
You sell your home
If you sell your home before your mortgage deal ends, you may have to pay an ERC to end your deal early.
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You're unable to port your mortgage
If your financial circumstances have changed, your lender might refuse a request to port (transfer) your mortgage. You could then decide to end your mortgage early and pay any ERC before moving to a new lender.
Amir’s story
Amir owns a two-bedroom flat and has recently received a £50,000 lump sum from his family. He wants to put it towards his mortgage. His outstanding mortgage is £250,000. He can overpay up to 10% of this mortgage balance each year. Meaning he can repay £25,000 free of charge.
If Amir pays the full £50,000, he’ll go £25,000 over his annual allowance, meaning an ERC will apply to that extra amount. In this example, let's say the ERC is 5%; Amir would be charged £1,250.
Amir uses the full £50,000 to reduce his mortgage balance, bringing it down to £200,000. The £1,250 ERC is then charged separately, either as a fee or added to his mortgage, depending on his lender.
How much is an early repayment charge?
The ERC amount varies by mortgage products and mortgage lenders. Typically you an expect to pay between 1% and 5% of your outstanding balance if you repay in full early.
If you overpay beyond your annual allowance (usually 10%), you may be charged between 1 – 5% of the extra amount you pay.
You can find out how much your ERC is for your Principality mortgage by reading your mortgage documentation, checking your online profile, or calling one of our mortgage team.
- Mortgages
Next Steps
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