What is an Early Repayment Charge?

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If you’re thinking about remortgaging or overpaying on your mortgage, you might have heard of an early repayment charge. Find out what these charges are for and how to avoid them.

What is an early repayment charge?

You might incur an early repayment charge if you pay off your mortgage before the agreed end of your deal. Mortgages have a set period of years in which you can pay them off.

If you pay off your mortgage early, or overpay by more than your lender allows, you may have to pay an early repayment charge. This is so your lender can make up for the lost interest they would have made over the remainder of your mortgage agreement.

You can choose to cover your early repayment charge if you are able to pay off your mortgage early.

You might also face an early repayment charge if you remortgage your home with a new lender. This can occur if you remortgage during the term of your current mortgage deal.

How much is an early repayment charge?

An early repayment charge is usually between 1% and 5% of what you still owe on your mortgage agreement.

You might be able to pay less if you have been with your lender a long time, but this is up to the lender. You can choose to pay your early repayment charge in one lump sum. This might make sense if the charge is lower than the amount of interest due on the rest of your mortgage.

When remortgaging your home, you may be able to spread your mortgage early repayment charge over the length of your new agreement.

When might you pay an early repayment charge?

You may face an early repayment charge if you pay off your mortgage sooner than planned, or overpay by too much in a certain period.

Below are the common reasons you might incur an early repayment charge:

You overpaid on your mortgage

Your mortgage agreement usually allows you to overpay by a little each year, usually 10% or lower. If you go over this amount, you could face a charge from your lender.

You remortgage to a cheaper deal or a new lender

Remortgaging at the right time could lower your monthly payments. You might be charged if you remortgage during the term.

You have to sell up

If you move out of your home you may have to pay an early repayment charge as part of the termination of your deal.

You have to redeem your mortgage

You can sometimes take your mortgage agreement with you when moving home. However, a lender can refuse to do this if your circumstances have changed, such as your salary is now lower.

In this case, you might have to end your mortgage early and pay any charges before you find a new lender.

How to avoid paying an early repayment charge

You can take several steps to avoid paying an early repayment charge.

Get a mortgage without charges

Your lender may offer a mortgage deal without early repayment charges – ask about this when agreeing your deal. Some fixed rate mortgages don’t include early repayment charges, or you may be able to avoid paying one after repaying for a number of years.

Overpay at the right time

Overpaying under the limit each year could help you save money on interest in the long term. If you have a mortgage with us, you can overpay up to 10% each year. Always contact your lender before overpaying on your mortgage.

Move lenders at the right time

Lenders may waive any charges you might incur for switching lenders if you only have a few years left on your term.

Port your mortgage

If you move home, you might be able to port your mortgage and stick with the same provider.

Avoiding the Standard Variable Rate

Once your mortgage deal ends, you'll be moved onto your lender's Standard Variable Rate. This can mean paying more interest. If you're sticking with the same lender, make sure you arrange a new deal to coincide with your previous deal ending.

This way, you can avoid being placed onto a Standard Variable Rate. Make sure you're not liable for an Early Repayment Charge when doing this.

The content on this page is for reference and does not constitute finance advice.

For impartial financial advice, we recommend government bodies like the Money Advice Service.

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