Mortgage Early Repayment Charges Explained (UK 2026)

If you are tied into a fixed-rate mortgage and want to remortgage, overpay heavily or move before the deal ends, you may face an early repayment charge (ERC). This is one of the most misunderstood mortgage costs in the UK, so here is how it works in 2026 and how to decide whether it is worth paying.

What an early repayment charge is

An ERC is a fee your lender applies if you repay more of your mortgage than your deal permits during the fixed or discounted period. It compensates the lender for the interest it expected to earn while your rate was locked in.

It typically applies when you:

• Remortgage to a new lender before your current deal ends
• Repay the whole mortgage early, for example after a sale or inheritance
• Overpay beyond your annual allowance
• Move home without porting your existing deal

Once you reach the end of the deal period and move onto the lender's standard variable rate, the ERC normally disappears.

How the charge is calculated

Most ERCs are a percentage of the amount you repay early, and many lenders use a sliding scale that falls each year. A common pattern on a five-year fix looks like this:

• Year 1: 5%
• Year 2: 4%
• Year 3: 3%
• Year 4: 2%
• Year 5: 1%

The exact figures are set out in your mortgage offer, so always check that document rather than relying on a typical example.

UK 2026/27 rates at a glance

The table below shows the approximate ERC structures used by major UK lenders in mid-2026. Rates shown are for the most popular five-year fixed products and are indicative — always verify against your own mortgage offer.

The Bank of England base rate stood at 4.25% following the May 2025 cut and most market forecasts in 2026 suggest one or two further reductions towards 3.75%–4.00% before the year ends. As a consequence, many borrowers who fixed at 5%–6% during 2022–2023 are now looking at new five-year deals in the 3.8%–4.4% range, making the break-even maths on ERCs more favourable than it was twelve months ago.

Worked example

Suppose you have a £200,000 balance, two years into a five-year fix, and your ERC for year three is 3%.

• ERC payable: 3% × £200,000 = £6,000

Now imagine a new deal would cut your rate enough to save roughly £4,000 over the remaining three years. In that case, paying £6,000 to save £4,000 would leave you £2,000 worse off, so staying put is better.

If instead a new deal saved you £9,000 in interest over the same period, paying the £6,000 charge would still leave you £3,000 ahead. The maths, not the marketing, decides it.

Example 2: high-balance remortgage in year one

A borrower with a £350,000 balance fixes for five years at 5.50% in early 2023. By mid-2026, three years in, they want to move to a new deal at 4.00%. The ERC in year three is 3%.

• ERC: 3% × £350,000 = £10,500
• Current monthly interest (approx., 20-year term): £2,075
• New monthly interest at 4.00% (approx., 17-year remaining term): £1,717
• Monthly saving: £358
• Gross saving over remaining two years: £358 × 24 = £8,592

In this case the ERC of £10,500 exceeds the two-year interest saving of £8,592, so breaking now does not pay. However, if the new deal offered 3.75% and two years is extended to the full remaining 17 years on the new product, the saving grows substantially. This is why the time horizon matters enormously in ERC calculations.

Example 3: end-of-year anniversary timing

A borrower on a five-year fix has £180,000 outstanding and their ERC drops from 4% to 3% on 1 September 2026. They want to remortgage.

• Completing before 1 September: 4% × £180,000 = £7,200
• Completing on or after 1 September: 3% × £180,000 = £5,400
• Saving from waiting: £1,800

Assuming a new deal could complete within four weeks, instructing a solicitor to target a September completion rather than August could save nearly two thousand pounds at the cost of one month on the existing rate. On a £180,000 balance at 5.25%, one extra month's interest is approximately £788. The net benefit of waiting is still around £1,012. Always ask your broker to check your exact ERC anniversary dates.

The 10% overpayment allowance

Most fixed deals let you overpay up to 10% of the outstanding balance each year with no ERC. On a £200,000 balance that is up to £20,000 a year you can clear penalty-free, which is often enough for regular overpayers to chip away at the debt without triggering a charge.

If you plan to overpay aggressively, check whether the allowance is based on the balance at the start of each year and whether unused allowance carries over, as rules differ between lenders. Some lenders reset the allowance on 1 January regardless of when your mortgage completed; others use the anniversary of your completion date.

To model how extra payments reduce your total interest bill and shorten your term, use the CalcHub mortgage overpayment calculator, which lets you input your balance, rate and monthly overpayment to project your savings instantly.

How to avoid or reduce an ERC

• Stay within your annual overpayment allowance
• Wait until the deal period ends before remortgaging
• Port your existing mortgage to a new property when you move
• Ask whether the lender offers a deal with no ERC, sometimes called a tracker or a fee-free product
• Time a remortgage to complete just after the deal ends, allowing for processing time
• Check whether your lender offers a product transfer to a new rate without triggering the ERC on the existing balance

Common mistakes to avoid

Ignoring the anniversary date. As demonstrated in example three above, completing a remortgage one month early can cost over a thousand pounds unnecessarily. Always verify the precise date your ERC steps down and build your solicitor's timeline around it.

Forgetting the new deal's arrangement fee. A deal with a £999 or £1,499 arrangement fee may still be cheaper overall, but it erodes your ERC saving. Add all costs to both sides of the ledger before comparing.

Calculating the saving over the wrong period. If you are two years from the end of a five-year fix and you take out a new five-year deal, your saving comparison should cover the remaining two years at your current rate versus two years of the new rate — not the full five-year term of the new deal, which you cannot know yet.

Assuming the 10% rule is universal. While 10% is the most common threshold, some lenders cap overpayments at 5% and a small number permit up to 20%. A few tracker mortgages allow unlimited overpayment. Rely on your mortgage offer, not general guidance.

Overlooking the exit fee. The ERC absorbs attention, but most lenders also charge a flat exit or deeds release fee of £50–£300 on top. Include it in your break-even model.

Not accounting for legal and valuation fees on the new deal. A no-fee remortgage deal sometimes comes with a higher rate. A fee-bearing deal at a lower rate may still win, but only if you stay long enough to recoup the upfront cost.

Waiting for a 'perfect' rate. Borrowers who held off remortgaging in late 2023 hoping rates would fall further sometimes ended up on a standard variable rate for months, paying 7%–8% while waiting. A good new deal locked in early often beats a slightly better deal locked in late.

Watch the deal end date carefully

Remortgages take several weeks to process. If you start too late, your old deal may end and you could slip onto the standard variable rate for a month or two. In 2026, most lenders' SVRs sit between 7.0% and 8.5%, compared with new fixed deals in the 4.0%–4.5% range. A single month on the SVR on a £200,000 balance could cost £500–£700 more than a new fixed rate would have.

Start the process roughly three to six months before your fix ends so the new deal can complete cleanly. Most lenders allow you to lock in a new rate up to six months in advance, and if rates fall further before completion you can often switch to a better product within the same lender without penalty.

For a detailed breakdown of how your mortgage balance, rate and remaining term combine to determine your monthly payment, try the CalcHub mortgage repayment calculator. You can also read the official guidance on mortgage costs and switching on the Money Helper website and the Financial Conduct Authority's mortgage switching pages, which set out your rights as a consumer in plain English.

Understanding your ERC before you act — not after you have instructed a solicitor — is the single most effective step you can take to protect your finances when managing a UK mortgage in 2026.