Why lenders charge it
When a lender gives you a fixed-rate deal, they plan to earn a set amount of interest over that period. If you leave early, they lose that income — so the ERC is their way of getting some of it back. You will most often see ERCs on fixed-rate mortgages, and on some personal loans and car finance.
How the charge is worked out
The ERC is usually a percentage of what you still owe — commonly between 1% and 5%. On a £200,000 mortgage balance, a 3% charge means paying £6,000 just to leave early.
Many deals use a sliding scale: the charge gets smaller each year of the fixed period. For example, 5% in year one, falling to 1% in year five. Your agreement will show the exact figures — check the table, not just the headline rate.
When it applies — and when it doesn't
- During the deal period: the ERC almost always applies if you pay off the mortgage in full, switch lenders, or sometimes even move house.
- Overpayments: most lenders let you overpay up to around 10% of the balance each year without charge. Go over that limit and the ERC can apply to the excess.
- After the deal ends: once your fixed period finishes and you move onto the standard variable rate, the ERC usually no longer applies.
- Porting: some mortgages let you take the deal to a new home ("porting"), which can avoid the charge — but check the conditions carefully.
How to avoid or reduce it
Time your move. If your fixed deal ends in a few months, waiting until it expires can save you the entire charge.
Stay within the overpayment allowance. If you want to pay down the balance faster, keep each year's overpayments under the limit in your agreement.
Do the maths before switching. A new deal with a lower rate can still save you money even after paying the ERC — but only if the interest saving is bigger than the charge. Work out both numbers before deciding.
In short
An early repayment charge is the price of leaving a deal early — often thousands of pounds, and easy to miss in the small print. Before you sign a mortgage or loan, find the ERC section and check the percentage, the years it applies, and the overpayment limit. If the wording is dense, run it through JargonShield and see exactly what you are agreeing to.