Mortgage Early Repayment Charges Explained 2026/27
Leaving a fixed-rate mortgage deal early -- to remortgage onto a better rate, pay off a lump sum, or move house -- can trigger a surprisingly large early repayment charge if you are not careful about timing and allowances. Understanding how the charge is calculated, and the penalty-free overpayment allowance nearly every deal includes, can save thousands of pounds. This guide explains how ERCs are calculated, typical tapering percentages, the annual overpayment allowance, when charges do not apply, porting as a way to move without penalty, and a worked example comparing a free overpayment to an early remortgage.
What an ERC Is
An early repayment charge (ERC), sometimes called an early redemption charge or exit fee, is charged if you repay some or all of your mortgage earlier than your current deal allows -- typically during a fixed, tracker or discounted-rate introductory period. It compensates the lender for interest income lost when a fixed-funding arrangement is disrupted.
ERCs usually apply only during the initial deal period and disappear once you move onto the lender's standard variable rate.
How ERCs Are Calculated
Most ERCs are a percentage of the amount repaid early, tapering down each year through the deal -- commonly something like 5% in year one, 4% in year two, 3% in year three, 2% in year four and 1% in year five for a five-year fixed rate, though the exact structure varies significantly by lender.
Some lenders use a flat percentage throughout, others taper differently, and a minority calculate the charge on the interest rate differential instead. Always check your specific mortgage offer document for the precise structure.
The Annual Overpayment Allowance
Most fixed and tracker deals include a penalty-free overpayment allowance, commonly 10% of the outstanding balance per calendar year, that you can pay off without triggering any ERC. This typically resets each year or on the mortgage anniversary.
Overpaying up to this allowance is a popular way to cut your balance and future interest without waiting for your deal to end -- check your specific allowance, since a minority of lenders offer more or less than the common 10% figure.
When ERCs Do Not Apply
Once you move onto the lender's standard variable rate after the deal ends.
Overpayments within your annual allowance.
Often waived on the borrower's death.
"No ERC" or fully portable products, usually at a slightly higher rate.
Always check your specific offer for lender exceptions, such as serious illness waivers.
Porting to Avoid an ERC
Porting -- taking your existing rate and term with you when you move house -- is the main way to avoid an ERC while moving during a fixed deal. If the new mortgage amount is the same as or less than your existing balance, and completion happens within the lender's permitted window (often three to six months), you can typically port without an ERC on the ported portion.
Extra borrowing for a more expensive property is usually arranged as a separate facility at current rates, while the ported amount keeps its existing terms.
Worked Example: Overpay vs. Remortgage
A borrower has £200,000 outstanding with two years left on a five-year fix, a 10% annual overpayment allowance, and an ERC of 2% in year four.
Option
Cost
Overpay £20,000 (10% allowance)
£0 -- fully within allowance
Remortgage early (redeem £200,000)
£4,000 ERC (2% of £200,000)
Using the free 10% allowance first, then remortgaging only once the fixed deal naturally ends (or once the interest saving clearly exceeds the ERC), is usually the lower-cost approach. Use the mortgage overpayment calculator to model your own numbers.
Frequently Asked Questions
What is a mortgage early repayment charge?
An early repayment charge (ERC), sometimes called an early redemption charge or exit fee, is a fee your lender charges if you repay some or all of your mortgage balance earlier than the terms of your current deal allow -- typically during a fixed-rate, tracker, or discounted-rate introductory period. It compensates the lender for the interest income they lose when you repay early, since they typically fund fixed-rate deals with matching fixed-rate wholesale funding, and an early repayment disrupts that funding arrangement. ERCs usually apply only during the initial deal period (for example, the first two or five years of a fixed rate) and disappear once you move onto the lender's standard variable rate.
How is an early repayment charge calculated?
Most ERCs are calculated as a percentage of the amount being repaid early -- either the whole outstanding balance if you are redeeming the whole mortgage, or just the extra amount if you are overpaying beyond your allowance. The percentage typically tapers down each year through the deal, commonly something like 5% in year one, 4% in year two, 3% in year three, 2% in year four and 1% in year five for a five-year fixed rate, though the exact structure varies significantly by lender and product -- some use a flat percentage throughout, others taper differently, and a minority calculate the charge based on the interest rate differential rather than a simple percentage. Always check your specific mortgage offer document, as the percentages and structure are set out there precisely.
What is the annual overpayment allowance?
Most fixed and tracker-rate mortgage deals include a penalty-free overpayment allowance, commonly 10% of the outstanding balance per calendar year, that you can pay off without triggering any early repayment charge. This allowance typically resets each year (or each anniversary of the mortgage, depending on the lender) and is separate from, and does not need to be combined with, any regular monthly overpayment facility some lenders also offer. Overpaying up to this allowance is a popular way to reduce your mortgage balance and future interest costs without waiting for your deal to end, and it is worth checking your specific allowance percentage, since a small minority of lenders offer more or less than the common 10% figure.
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When do early repayment charges not apply?
ERCs generally do not apply once you move onto your lender's standard variable rate (SVR) after your initial deal period ends, since SVR mortgages are typically flexible with no fixed term and no exit penalty. They also typically do not apply to overpayments within your annual allowance, as covered above. Many lenders also waive ERCs in the event of the borrower's death (paid from a life insurance policy or the estate), and some mortgage products are specifically sold as "no ERC" or portable-without-penalty deals, usually at a slightly higher interest rate to compensate the lender for the flexibility. Always check your specific offer for any lender-specific exceptions, such as waivers for serious illness or house moves under a porting arrangement.
Can I avoid an ERC by porting my mortgage to a new property?
Porting -- taking your existing mortgage deal, including its interest rate and remaining term, with you when you move house -- is the main way to avoid an ERC while still moving home during a fixed deal. If the new mortgage amount is the same as or less than your existing balance, and completion of the sale and purchase happens within the lender's permitted window (often around three to six months), you can typically port without triggering an ERC on the ported portion. If you need to borrow more for the new property, the extra amount is usually arranged as a new, separate lending facility at the lender's current rates, while the original ported amount keeps its existing rate and terms. Porting rules, eligibility criteria and time windows vary by lender, so check early in your house-move process.
Is it worth paying an ERC to remortgage onto a better rate?
It depends on the maths: compare the total cost of the ERC plus any new arrangement fees against the total interest saving from switching to a lower rate for your remaining term. If interest rates have fallen significantly since you took out your current fixed deal, or your circumstances have changed substantially, the interest saved over the remaining term can sometimes outweigh even a sizeable ERC, particularly with several years left on an expensive deal. This calculation is highly specific to your mortgage balance, remaining term, the ERC percentage, and the rate difference, so it is worth running the actual numbers (or asking a mortgage broker to do so) rather than assuming an ERC automatically makes remortgaging not worthwhile.
Do early repayment charges apply to the whole balance or just the amount repaid?
It depends on what you are doing. If you fully redeem the mortgage (pay it off completely, for example by remortgaging elsewhere or selling the property without porting), the ERC percentage is typically applied to the whole outstanding balance at the point of redemption. If you make a partial overpayment above your annual allowance while keeping the mortgage running, the ERC usually applies only to the portion of the overpayment that exceeds your allowance, not to the whole mortgage balance -- so a modest excess overpayment triggers a proportionately modest charge, not a charge on the entire outstanding loan.
How do I find my mortgage's exact ERC percentages?
Your original mortgage offer document, and the key facts illustration provided when you took out the deal, set out the exact ERC percentages and the years they apply for your specific product. Most lenders also show this information in your online mortgage account or annual mortgage statement, and your lender's customer service team can confirm the current position, including exactly how much an ERC would be if you redeemed today, on request. If you cannot locate the original paperwork, contacting your lender directly is the most reliable way to get an accurate, up-to-date figure rather than relying on generic percentage assumptions, since your specific deal may differ from typical examples.
Does an early repayment charge affect my credit score?
No -- paying an early repayment charge, whether as part of a full remortgage or an overpayment, is a normal contractual cost and does not itself affect your credit score, provided you pay it (it is usually deducted from mortgage proceeds or added to the amount you owe rather than requiring a separate payment you could miss). What can affect your credit score is any missed payment or arrears leading up to the point of remortgaging or redemption -- the ERC itself, as a fee correctly paid according to your mortgage terms, is not reported as adverse credit information.
Worked example: overpaying within the allowance vs. remortgaging early?
A borrower has a £200,000 mortgage balance with two years left on a five-year fixed deal, a 10% annual overpayment allowance, and an ERC of 2% in year four tapering to 1% in year five. Overpaying £20,000 (10% of the balance) this year is entirely free, reducing the balance to £180,000 and cutting future interest. If the borrower instead wanted to remortgage early to a better rate now, redeeming the full £200,000 balance, they would face a 2% ERC of £4,000 -- a cost that would need to be justified by interest savings from the new rate over the remaining term to be worthwhile. In most cases, using the free 10% overpayment allowance first, then remortgaging only once the fixed deal naturally ends (or once the interest saving clearly exceeds the ERC), is the lower-cost approach.
Disclaimer: This guide reflects general UK mortgage early repayment charge practice for 2026/27. Exact percentages, allowances and terms vary by lender and product and can change. This guide is for general information only and is not professional mortgage or financial advice. Consult a qualified mortgage broker or your lender and refer to your mortgage offer documents for the exact terms of your deal.
