Remortgaging with an early repayment charge: compare costs

Paying an early repayment charge isn’t always the most expensive choice. Avoiding early repayment charges when remortgaging often comes down to timing: you can generally secure a new mortgage deal up to six months before your current deal expires without triggering a charge, or wait until the charge period ends before switching. Whether it’s worth acting sooner depends on how the charge compares with the interest you could save.

It’s understandable to focus on the ERC first. It can feel like a hefty cost when changing your mortgage, but delaying a switch can also cost more if you’re paying unnecessary interest. The useful comparison is the total cost of each option, not simply whether a charge applies.

This article explains when paying an ERC may make financial sense, how to compare a new lender’s deal with a product transfer, and which fees to include alongside the charge. It also covers how the end date of your current deal can shape your options, helping you weigh up whether to switch now or wait.

Is it ever worth paying an early repayment charge?

Paying an early repayment charge (ERC) may make financial sense if the interest savings from a new mortgage deal outweigh the charge and other costs. Your mortgage illustration states whether an ERC applies and how much it may be. The lender’s redemption statement gives the amount needed to repay on a specified date.

UK lenders rarely waive a contractually agreed ERC, except in exceptional circumstances, such as a significant lender error. The Financial Ombudsman Service considers cases where borrowers believe a charge is unfair.

Working out and paying an ERC

An ERC is a charge for repaying some or all of your mortgage during a specified period. The amount matters because it affects whether switching now costs less overall than waiting until that period ends.

The charge is calculated as a percentage of your outstanding balance when you repay, not your original loan. Ask your lender for a redemption statement dated for the planned repayment, then include the ERC shown in your cost comparison.

Some mortgages allow overpayments of up to 10% of the outstanding balance each year without an ERC. The allowance and its calculation depend on the mortgage terms, so check how much you can repay within the permitted limit before switching.

ERC percentages and mortgage protections

ERCs on UK mortgages typically range from 1% to 5% of the outstanding balance. The mortgage illustration sets out whether the charge applies and its amount, giving you a figure to include when comparing mortgage deals.

For example, a five-year fixed-rate mortgage might charge 5% in year one, falling by one percentage point each year to 1% in year five.

ERCs can apply to fixed-rate mortgages and some tracker and discount mortgages. The interest rate alone won’t tell you whether a charge applies. Check your mortgage illustration and the period set out in your mortgage terms to find when the charge changes or ends.

To decide whether paying is worthwhile, compare the ERC with the interest savings from switching, including relevant fees. A £4,000 charge is substantial, but it isn’t automatically the more expensive option if a new deal reduces your interest costs enough. Compare the total costs over the same period, rather than weighing the charge against the new rate alone.

For instance, the ERC on a five-year fixed deal may reduce as the period progresses. Waiting could lower the charge, while changing interest rates could affect the savings from a replacement deal. Compare the figures for the dates you’re considering.

Product transfers versus remortgaging with a new lender

A product transfer changes your deal with your existing lender, while a remortgage replaces your mortgage with a loan from another lender. Comparing both routes helps you weigh the rate against fees and any ERC.

Product transfers and same-lender remortgaging

A product transfer moves you to another deal with the lender that already holds your mortgage. This lets you compare a new rate without moving the outstanding loan to a different lender.

When your fixed-rate deal ends, your existing lender may offer a product transfer. A remortgage with a new lender involves repaying the existing mortgage and setting up a replacement loan. That distinction matters if your current mortgage is still within an ERC period. Compare the transfer rate and terms with the full cost of moving, not just the headline rate.

Fees from the existing lender

An administration fee is a charge for handling a mortgage change or closure.

Include this fee alongside the interest rate and ERC. A product transfer and a remortgage with a new lender can involve different costs, so check the total charges for each offer. A lower rate, for example, may be less attractive if fees reduce the overall benefit during the period you plan to keep the mortgage.

ERC waivers and complaints

An ERC waiver is when a lender agrees not to collect a charge set out in the mortgage contract. UK lenders very rarely waive an agreed ERC, except in exceptional circumstances such as a significant lender error.

If you believe the charge is unfair, the Financial Ombudsman Service considers complaints involving mortgage ERCs. Keep the mortgage offer, relevant correspondence and the lender’s explanation together so the details are clear. A complaint does not automatically waive the charge. Include it in your comparison unless the lender changes it.

Paying or offsetting an ERC through a new lender

You may be able to pay an ERC upfront or add it to a new mortgage. Either way, it affects the total borrowing and interest paid, so compare both approaches with a product transfer from your existing lender.

Adding the charge increases the replacement mortgage balance, and you’ll pay interest on that amount. Paying upfront avoids borrowing the charge but uses money that could remain available for household costs or other plans. The new lender’s rate, fees and mortgage term all affect the comparison.

A remortgage with a new lender also involves legal work to move the mortgage, usually handled by a solicitor. Include this cost, the administration fee and any ERC when comparing offers, so you assess the cost of switching rather than just the headline rate.

Check whether a legal fee is included, whether lender fees are paid upfront or added to the loan, and how long you expect to keep the new deal. These details can change which route costs less overall. A product transfer avoids changing lender, while a remortgage gives you a separate offer to compare with your existing lender’s terms.

Comparing ERC costs with interest savings

Paying an ERC can make financial sense when the interest savings from a replacement mortgage outweigh the charge and switching costs. Compare the total cost of keeping your current deal with the cost of moving, using the same comparison period for both. A lower interest rate alone won’t show which option costs less overall.

Start with the ERC shown for your planned repayment date. Then estimate the interest saved with the new mortgage over the period you expect to keep it. Include any arrangement or administration fees, legal costs and valuation charges that apply. Many UK mortgage lenders provide a free valuation when you remortgage, but include a charge if one applies to your offer.

A practical example: if a new mortgage saves £200 per month in interest, it takes 20 months to recover a £4,000 ERC. Savings before that point haven’t yet covered the charge. If you expect to keep the mortgage beyond the recovery point, the saving may outweigh the ERC, provided other costs don’t alter the comparison.

Use the actual monthly difference between the two mortgage options, rather than comparing headline interest rates alone. The outstanding balance, mortgage term and fees all affect the cost. A longer term can lower monthly payments while increasing the time you pay interest, so compare the total payable as well as the monthly figure.

The balance matters too. With a mortgage balance of around £50,000 or less, the potential savings from switching may be limited. Even a lower rate can produce modest savings when applied to a smaller amount, leaving less room to recover an ERC and other costs. Compare the calculated saving against the charge before deciding.

Your current deal also affects the alternative. A mortgage that has moved to its standard variable rate may have different interest costs from a fixed-rate deal. Standard variable rate payments can rise or fall with the bank’s rate, so include the rate and payment assumptions in your comparison. A tracker mortgage’s rate responds to changes in the Bank of England base rate.

Set out the comparison in a simple table, with one column for keeping your current mortgage and another for switching. Include the ERC, interest, fees, valuation costs and expected time on the new deal. This makes it easier to see whether switching now costs less than waiting for the charge period to end, or whether keeping your current mortgage is the lower-cost option.

Timing a remortgage to avoid early repayment charges

A practical step in avoiding early repayment charges when remortgaging is to match your switch date to the charge period. You can generally secure a new mortgage deal up to six months before your current deal expires without triggering an ERC.

Choosing when to remortgage

Timing a remortgage means aligning the new deal with the end of your current mortgage’s ERC period. This matters because repaying too early can trigger a charge, while waiting may avoid it.

UK homeowners commonly have initial fixed-rate periods of two, three or five years. Find the deal end date and ERC period end date in your mortgage paperwork. They may differ because a mortgage tie-in period can last longer than its deal period.

For example, a fixed rate might end while an ERC still applies under the tie-in terms. Find both dates, then compare the cost of switching on each one. A qualified adviser can help assess the interest rate and mortgage balance alongside the charge and other costs.

Planning ahead gives you time to compare offers and choose a completion date. You can generally secure a new deal up to six months before your current deal expires without triggering an ERC. Securing an offer and repaying the existing mortgage are separate events, so the repayment date matters. To avoid an early repayment charge when remortgaging, compare the contractual dates, not just the fixed-rate end date.

When the initial deal ends, your mortgage will normally move automatically to your lender’s standard variable rate. Borrowers on a standard variable rate mortgage may not have to pay an ERC when remortgaging. Compare that rate with alternatives, as interest paid during any delay affects the overall cost.

Costs and risks of delaying

Delaying means keeping your current mortgage until the ERC period ends. Compare the interest paid while you wait, any charge avoided and the fees on the replacement deal.

Include any lender administration, legal and valuation fees in your comparison. A free valuation removes that particular cost, but not the interest paid while waiting or any other fees. Compare the total cost of delaying with the cost of switching earlier and paying the charge.

Also consider how your outstanding mortgage balance may change during the delay. Regular repayments reduce the balance, affecting how much you need to borrow for a replacement mortgage. Property value, income, affordability and lender criteria can also influence your options when you apply.

Interest rates may change while you wait, affecting the deals available when the ERC period ends. Compare the mortgage offer available now with the cost of staying on your current deal until the proposed switch date. A sound plan for avoiding early repayment charges when remortgaging weighs these costs together rather than assuming waiting is automatically cheaper.

Can a new lender pay or offset my existing mortgage’s early repayment charge?

A new lender may let you add your existing mortgage’s ERC to the replacement loan instead of paying it upfront. This does not remove the charge: it increases the amount borrowed, and interest applies to that extra borrowing. Compare both payment routes with the cost of waiting for the ERC period to end.

Adding the charge may let you switch without using savings to pay the full amount. However, your new mortgage balance will be higher, so calculate the interest on that additional borrowing over the mortgage term.

Paying upfront avoids adding the ERC to your mortgage balance, but reduces the cash available for other needs. Consider your savings, regular outgoings and plans before deciding. If you’re moving home or covering property costs, keeping funds accessible may matter as much as the monthly mortgage payment.

To compare the options, use the same new mortgage rate and term for both calculations. Include the ERC in the borrowing for one option, then compare it with paying the charge separately. Consider the monthly payment and total interest, not just the cash needed on completion. Lender criteria vary, and the replacement loan must meet the lender’s affordability assessment.

Check how the new lender treats the added charge in your application. It forms part of your total borrowing, which can affect the loan-to-value calculation and the deals available. The property value, outstanding mortgage and any additional borrowing all affect that calculation. A higher loan-to-value may mean a different range of rates or mortgage terms.

Also compare the new deal with a product transfer from your existing lender. A transfer avoids moving the mortgage to a new lender, while a remortgage may offer different rates and fees. A lower headline rate doesn’t automatically make the new loan cheaper once the ERC and interest on it are included.

Finally, compare paying now with delaying until the charge period ends. Include the interest paid on your current mortgage during the wait, alongside any new-loan fees. If you add the charge to your borrowing, compare the total cost over the period you expect to keep the mortgage. These figures can show whether financing the ERC or waiting better fits your plans.

Lee Tonks: Mortgage Guru: Bad Credit Mortgages

Lee Tonks: Mortgage Guru can help you compare remortgage options when an early repayment charge makes switching less straightforward, connecting you with fully qualified, FCA-authorised advisers. Bad Credit Mortgages advice may be relevant if your credit history affects the deals available, alongside your mortgage balance, income and affordability.

Reviewing the full costs matters: the lowest interest rate may not be the most suitable once an ERC, fees and mortgage terms are considered. Lender criteria vary, so the right option depends on your circumstances and the deals available. If you’re self-employed, lenders may assess salary, dividends and retained profit differently.

If you’d like help weighing up your remortgage options, contact Lee Tonks: Mortgage Guru for guidance.

Make your next mortgage decision with confidence

A clear plan for avoiding early repayment charges when remortgaging starts with understanding your priorities as well as the figures. Consider how long you expect to keep the property, whether your income may change and how much flexibility you want from your next mortgage. These details can help shape a choice that works beyond the immediate switch.

Your options depend on factors such as income, affordability, credit history and lender criteria. The lowest interest rate may not be the most suitable if the wider mortgage terms don’t fit your circumstances.

This information is general only, not personalised financial advice. Mortgage criteria can change, so speak with a qualified adviser for up-to-date guidance. Falling behind on repayments can lead to repossession, and any equity released is secured against your home.

Taking time to compare your options can help you move forward with greater clarity.

Frequently Asked Questions

How much will remortgaging cost?

Remortgaging costs depend on the deal and which fees it includes. Check whether each fee is paid upfront or added to the loan. If added, the fee becomes part of your borrowing, so you’ll pay interest on it too. Include all applicable charges when comparing offers.

How can I avoid paying the ERC when I remortgage or move house?

You can generally avoid an ERC by waiting until its charge period ends before switching. When moving home, you may also be able to port a portable mortgage to the new property. Porting means taking the existing mortgage with you rather than repaying it and starting afresh. Check your mortgage terms and compare the costs of porting, waiting or switching early before deciding.

Can I make overpayments without triggering the ERC?

Some UK mortgages allow overpayments of up to 10% of the outstanding balance each year without triggering an ERC. The allowance depends on your mortgage terms. Some lenders calculate the limit using the original balance instead, so the amount available can differ. Check the relevant allowance and how much you’ve already overpaid during the period before making another payment.

How can I avoid this fee?

If you mean the early repayment charge, compare waiting until its period ends with moving home using a portable mortgage. You can also check whether a planned overpayment falls within your mortgage’s allowance. These options work differently: waiting delays the switch, porting takes the existing mortgage to another property, and an overpayment reduces the balance within the permitted limit.

How do I know if I need to pay an ERC?

Your mortgage illustration states whether an ERC applies and how much it may be. The charge depends on your mortgage terms and whether you’re repaying during the specified charge period. For the amount relevant to a planned completion date, use a redemption statement from your lender. It sets out the amount needed to repay the mortgage on the date stated.

When do early repayment charges apply when remortgaging in the UK?

ERCs can apply when you repay a mortgage during its charge period. They’re associated with fixed-rate mortgages and can also apply to some tracker and discount mortgages. Your mortgage terms set out the relevant dates, and the charge period can differ from the initial deal period. Check both before arranging a switch, particularly if your fixed rate has ended.

How are mortgage early repayment charges calculated, and what are typical rates?

An ERC is generally calculated as a percentage of the outstanding mortgage balance when you repay. UK charges typically range from 1% to 5%. The percentage can change during the charge period, so use the rate applying on your intended repayment date, not the original loan amount.

How can I find the early repayment charge and end date in my mortgage documents?

Start with your mortgage illustration, which states whether an ERC applies and gives its amount. Then read your mortgage terms for the dates and conditions governing the charge period. The product end date and ERC end date can differ. For a planned repayment, request a redemption statement showing the amount due on the relevant date, including any applicable charge.