An Early Repayment Charge (ERC) is a lender fee — usually 1–5% of the outstanding balance — for leaving a fixed-rate mortgage before the deal ends. When rates are falling, it can still be cheaper to pay the ERC and remortgage 6 months early than to wait.
A Worked Example (£250,000 Balance)
| Item | Amount |
|---|---|
| Outstanding balance | £250,000 |
| Current rate (6 months left) | 5.24% |
| New 5-year fix available now | 4.49% |
| Rate improvement | 0.75% |
| Interest saved (5 years, simple) | ~£9,375 |
| ERC (1% of balance) | £2,500 |
| Product fee + valuation + legals | ~£1,300 |
| Net saving | £5,575 |
When Waiting Is Better
- Rate improvement is less than 0.5% — the maths rarely works after fees
- You're on a small balance (< £100k) — fixed fees eat the saving
- You can lock the new deal 6 months ahead ERC-free — same rate, no ERC
- You're planning to move within 12 months — a product transfer beats a full remortgage
Let a Broker Do the Maths
Get a free ERC-vs-remortgage review — we'll pull your redemption statement, price the new deal, and show you the net figure in writing before you commit.
Frequently Asked Questions
- How much is the ERC in the final 6 months of a fixed rate?
- Usually 1% of the outstanding balance for a 5-year fix, or 1% for a 2-year fix in its second year. Check your original offer — the ladder is fixed at completion.
- Can I remortgage without paying the ERC?
- Yes — most lenders let you lock a new deal up to 6 months before your current fix ends. The new deal only starts on the day your ERC drops to zero, so you pay nothing.
- When does paying the ERC make sense?
- When (new rate saving × new fix term × balance) > ERC + product fee + legal fees. On a £250k balance, a 0.75% cut over a 5-year fix saves ~£9,375; a 1% ERC costs £2,500. Net win: £6,875.
- Does the ERC come off the new mortgage or do I pay it upfront?
- Either. You can add it to the new loan (increases balance and interest cost) or pay it from savings. Adding it is common but check the true cost.
Sources & References
- FCA — Mortgage market rules on ERCs — Financial Conduct Authority
- Bank of England — Swap rates and mortgage pricing — Bank of England
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