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Mortgages With No Early Repayment Charges

A guide to mortgages with no early repayment charges.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 21st October 2019 *

In this guide, you’ll learn about mortgages with no early repayment charges (ERCs). You’ll read about the various kinds, their pros and cons, how to compare deals and how to find the best no early repayment charge mortgage for you.

Looking for a mortgage without repayment charges, or need some of your questions answered? Get in touch - one of the experts that we work with will be able to help you.

Here’s what you’ll learn in this piece

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’No early repayment charge’ mortgages: What are they and what do I need to know?

No early repayment charge mortgages (also known as ‘no ERC mortgages’) are, as you may have guessed, a mortgage in which you are not charged for overpaying on your loan or paying it back early.

What is an ‘early repayment charge’ on a mortgage?

An early repayment charge is effectively a penalty levied by your lender for paying your mortgage off sooner. They’re sometimes known as ‘redemption charges’ or ‘redemption fees’.

ERCs are usually given as a percentage of your mortgage loan, typically between 1-5%. As such, they can cost thousands of pounds, depending on how much you borrow. 

You’ll typically incur one if you want to ‘exit’ the mortgage before the date that you agreed to, or if you make an overpayment that is greater than the amount you’re allowed to overpay by. This can be on top of your lender’s standard 'exit fees’, which can run to a few hundred pounds.

They exist because lenders stand to make less money in interest if you pay off your loan faster. As such, early repayment charges are partly there to discourage you from switching away every time you find a better deal. Obviously, lenders can’t stop you from repaying your mortgage, or moving, but they can try to discourage you with fees.

ERC charges are relatively common - you’ll find them on both fixed-rate mortgages and tracker mortgages. The only kind of mortgage where you’re unlikely to see them is on a standard variable mortgage (SVR). Fixed mortgages with no early repayment charge are traditionally one of the rarest kinds of mortgage, but they do exist.

ERCs are usually given as a range (i.e. above 10% or 20%)

The big thing to remember is how much you’re allowed to overpay by. 

It’s not uncommon for many mortgages to allow you to overpay by 10%, less so by 20% - this is often referred to as an ‘overpayment allowance’. Some mortgages, however, allow you to overpay by as much as you want (i.e. paying off the entire balance of your mortgage).

Early repayment charges are always disclosed in your mortgage offer documents. If in doubt, ask.

ERCs something of a trade-off

ERCs are kind of like a trade-off for getting a good mortgage deal. For a better rate, your lender will want you to see you commit for a few years. So in exchange for the lack of flexibility, you ‘lock in’ a lower interest rate.

ERCs can reduce over the term of a mortgage

In some instances, ERCs will reduce over time - for example, starting out at 5% in the first year of your mortgage and falling to 1% in the fifth year of your mortgage. Alternatively, you could have a 10-year offer in which you’d only be charged an ERC in the first 5 years.

As a general rule, the more years you have left on your introductory deal, the higher your ERC will be. This particularly true with longer term fixed deals.

ERCs can be expensive

As an example, an ERC of 2% (which is not uncommon) on a loan of £150,000 would cost you £3000.

Is it possible to get a mortgage with no early repayment charges?

Certainly. In the UK, no early repayment charge mortgages aren’t uncommon. However - whether you can get one or not will depend to an extent on the kind of mortgage that you want. No ERC deals are rarer in some kinds of mortgage than others.

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What are the advantages of mortgages with no ERC?

There are plenty of advantages to choosing a no ERC mortgage. Here’s a few.

They offer flexibility 

Mortgages without early repayment charges are particularly appealing to people who require flexibility, or who don’t want to be locked in. For example, they allow you to remortgage without significant penalty, which is particularly helpful if you think you may be moving in the next few years.

Another example is people with variable incomes, such as the self-employed. Being able to overpay during periods of higher earning can help to save lots of money in interest later.

They could save you money if you’re able to aggressively overpay

As a general rule, if you think there’s a good chance that you’ll be able to pay your mortgage off a few years early, a deal with no early repayment charges could save you money, even if the rate it offers is not as good as a mortgage with an ERC.

To work this out, what you do is compare the price of the early repayment charge against the amount of interest in the period in which you could have paid off your mortgage early. 

What are the disadvantages of mortgages with no ERC?

Mortgages with no early repayment charges are not for everyone. Here are a few reasons why.

They can cost more

The main drawback? They usually cost more.

No ERC mortgages tend to cost more in interest. They can also incur additional arrangement fees at the start of the loan.

They can be more difficult to get

In the same way that products with lower interest rates are reserved for customers with larger deposits, better credit and so on - many no ERC mortgages have stricter borrowing criteria. 

In some cases, this can make them harder to get, though a great broker (like one of the experts we work with), can help you to find the best deal by scouring the entire market for you.

What are the different kinds of no ERC mortgage?

We’ve given some examples below.

No early repayment charge interest only mortgages

Interest-only mortgages with no early repayment charge tend to be very popular in the buy to let sector, due to the flexibility and lower cost that they provide.

As a reminder, interest-only mortgages allow you to reduce your monthly payments by only paying off the interest on the loan, though the principal balance of the loan is due at the end of the mortgage. 

No early repayment charge offset mortgages

The power of the offset mortgage is the ability to ‘offset’ your interest payments by keeping your funds in a bank account that is linked to your mortgage.

Unfortunately, there aren’t any offset mortgages with no early repayment charges on the market at the time of writing.

No early repayment charge tracker mortgages

Tracker mortgages without early payment charges are particularly common - especially amongst standard variable rate (SVR) mortgages. 

As an example, most lenders have an SVR that you’ll end up on, once your initial fixed-rate deal has expired. The majority of these tend not to have ERCs, which allows you to switch onto a better deal without penalty. 

That said, you’ll want to keep an eye out for any ‘overhang’ period in which the early repayment charge still applies once you’ve moved onto your SVR - this is rarer these days but is one to look out for. 

You’ll also find other kinds of tracker mortgages that come without ERCs, but this is less common than in SVRs.

You can read more in our guide to tracker mortgages

Fixed rate mortgages with no early repayment charge

Traditionally, no early repayment charge fixed mortgages have been one of the rarer kinds of no ERC mortgage. 

In fact, ERCs have long been seen as ‘part and parcel’ with fixed-rate mortgages. Usually, the rate that you were getting on your fix was a good one, which meant your lender wanted you to commit. 

However, the last few years have seen the emergence of a few different lenders offering fixed mortgages with no ERC.

In a fixed rate with no early repayment charge, you need to look out for other fees 

With these kind of mortgages, you can expect to pay arrangement fees, often higher than the average. 

In a fixed rate mortgage with no early repayment charge you need to be mindful of other fees, for example - arrangement fees, mortgage exit fees and completion fees all of which when combined can add up to four figures. These can usually be paid up front or added to the mortgage loan.

If you’re interested in getting a fixed rate mortgage with no ERC, get in touch and one of the experts that we work with may be able to help find one for you.

Buy to let mortgages with no early repayment charge

Buy to let mortgages without early repayment charges are very popular in the BTL sector. Landlords are often likely to refinance - for example, in order to free up capital for another investment. 

However, as is often the case with this kind of product, BTL mortgages with no ERC tend to incur higher administrative fees to make up for this.

There can also be stricter criteria in no ERC buy to let - such as the requirement for a larger deposit, a minimum annual income, a tougher rental stress test or a stronger credit history. 

If you’re in the market for a no ERC buy to let mortgage, get in touch and one of the experts that we work with may be able to help.

Let to buy mortgages with no early repayment charge

In let to buy (not to be confused with ‘buy to let’), you rent out your ‘old’ property, which helps you to pay the mortgage on your new home.

At the time of writing, there are a limited number of no ERC let to buy mortgages on the market. Many lenders (particularly the smaller building societies) offer them on tracker or discount rates.

You can read more in our guide to let to buy mortgages.

No ERC lifetime/equity release mortgages 

No ERC mortgages are a lot less common in this area due to the way that equity release schemes work. Put simply, your typical lifetime mortgage customer is not looking to repay their loan in this lifetime. 

All that said, there’s now a limited number of no ERC equity release mortgages. If you’d like to learn more check out our guide to equity release.

If you’re interested in finding out more about a no ERC lifetime mortgage, get in touch and one of the experts we work with will look into it for you.

Where can I find a no ERC mortgage comparison?

The easiest way to compare mortgages with no early repayment charge is by talking to one of the expert brokers that we work with. Here’s a few reasons why:

Online rate tables are neither thorough nor reliable

Online rate tables are not tailored to your specific borrowing profile, and often give more prominent placement to sponsored products. And they rarely cover the whole of the market.

Going ‘DIY’ is time consuming and could cost you money

Doing your own comparison is certainly an option, but you’ll need to put a lot of time and energy in - even then, you won’t be able to access the whole of the market. As a result, you might miss a less obvious or broker-only deal that could’ve saved you money.

On top of this, a DIY no early repayment charge mortgage comparison could incur extra marks on your credit report. 

How do I remortgage with no early repayment charge?

Unfortunately, if you are in a mortgage with early replacement charges, the only thing that you can really do is ‘wait out’ the ERC period. Depending on your mortgage, this could be for the entire remaining term, or just a few more years.

It’s important to bear in mind that there can be instances in which paying your ERC would still save you money, examples include switching to a mortgage with a better rate, or paying off your mortgage early. 

If you’re unsure if this would be right for you, get in touch. One of the experts that we work with can take a look at your situation to recommend the most cost-effective option for you.

How can I find the best mortgage with no early repayment charge?

The best mortgage rates with no early repayment charge are typically reserved for people with excellent credit, large deposits and sizeable incomes. 

That said, mortgage deals with no early repayment charge are still available, even if you don’t tick all of the lender’s boxes.

The best way to get a deal is to be seen as a ‘low-risk’ borrower by your lender. There’s a few things that you can do to help with this. We’ve outlined some of them below.

Decrease your loan to value

The larger your deposit, the less you’ll be borrowing from your prospective lender, everything else being equal. This helps to make risk-averse lenders more comfortable with your application. 

Watch your credit history 

Lenders pay a lot of attention to your credit history and the number on your credit score quantifies your perceived ‘creditworthiness’. A history of bad credit doesn’t have to be a dealbreaker, but it can reduce your options. 

Take a look at our guide to getting a mortgage with bad credit if you’d like to learn more.

Speak to a specialist broker

A whole-of-market mortgage broker (such as one of the fantastic experts that we work with) can comb the entire mortgage market for you, including broker-only lenders and other deals that are not open to the public. 

Which means if there’s a no ERC mortgage deal out there for you,  they’ll help you get it.

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Talk to a no early repayment charge mortgage expert today

If you have questions about the best no ERC mortgages and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the mortgage expert with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 21st October 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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