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How to Get Mortgages With No Early Repayment Charge

Looking to get no early repayment charge mortgages? Our mortgage advisors are here to help you secure the right product for your needs, whatever your circumstances.

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Navigating Mortgages with No Early Repayment Charges

Early repayment charges can be a hindrance if you plan on overpaying your mortgage and owning your dream home quicker and earlier. They can also prevent you from remortgaging whenever you find a competitive deal that saves you a significant amount of money.

One way to avoid these fees is to consider mortgages with no early repayment charges. These mortgages offer you the flexibility to exit early without any penalty, but they can be hard to find. Our expert advisors are here to guide your search and ensure your approval for the best deals thanks to our industry expertise.

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What is an early repayment charge?

An early repayment charge (ERC) is a fee that lenders charge if you choose to pay off all or part of your mortgage ahead of the scheduled period. It’s usually expressed as a percentage of your outstanding loan balance and varies depending on your lender and mortgage type.

If your mortgage has an ERC, you’ll find its details outlined in your loan documents. Note that the tie-in period of your mortgage deal refers to the duration of time when an ERC will apply.

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Why do lenders have early repayment charges?

Lenders set up early repayment charges or redemption fees to deter borrowers from ending the mortgage deal earlier than planned. Lenders’ rates are based on the entire mortgage term, so they lose out on interest income when you pay off all or part of your loan ahead of time. That’s why an early repayment fee is charged when you end your mortgage deal early – so the lender can recoup some of the interest they would have earned if you had seen out the full term of your mortgage.

Additionally, lenders spend considerable time and resources when evaluating borrowers and setting up funds. ERCs allow lenders to recoup some of their lost income. These charges also encourage borrowers to consider the loan terms properly before committing to a lender or deal.

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When do I have to pay an early repayment charge?

Not all mortgages carry an early repayment charge. An ERC often applies to fixed-rate mortgages, so if you’re on a standard variable-rate deal, you likely won’t have to pay. It’s a good idea to check your mortgage offer or contact an advisor to know which charges apply to you.

If your mortgage deal has an ERC, you may be charged when:

  • You sell your home due to a change in personal circumstances.
  • You transfer to a new house but your lender won’t allow you to port your existing mortgage.
  • You switch to a new lender for a better deal before the end of the tie-in period.
  • You pay off your mortgage before the end of the tie-in period.
  • You remortgage with your current lender before the end of the tie-in period.
  • You make a mortgage overpayment that exceeds your lender’s annual allowance.

What is a mortgage overpayment?

An overpayment is an extra amount that you pay on top of your usual monthly mortgage payment. You can make an overpayment through a one-off lump-sum payment or through regular overpayments each month.

Overpaying allows you to pay off your mortgage quicker and reduces the total interest you’ll have to pay. Some mortgages limit your overpayments to a certain amount, known as an overpayment allowance. You’ll have to pay an ERC if you exceed this allowance. 

Frequently Asked Questions

What is remortgaging?

Remortgaging a property involves switching to a new deal with your existing lender or a different one. This arrangement allows you to save money on mortgage payments by lowering the interest rate. It also lets you borrow more money while releasing equity from your home.

One of the common reasons why borrowers remortgage is because they’re at the end of their lender’s initial fixed-rate period and they want to improve their financial situation. If you remortgage during your lender’s tie-in period, you might have to pay an early repayment charge for ending the loan early.

An early repayment charge usually falls between 1% and 5% of your outstanding mortgage balance. Most lenders charge a higher percentage during the early years of the deal, which goes down as you near the end of the tie-in or deal period.

You can choose to pay the charge on a lump sum basis or spread it over a certain period. Note that some lenders may choose to calculate the ERC differently. It’s important to thoroughly review the provisions of your mortgage agreement before taking an offer.

To give you an idea, here is an example of an early repayment charge schedule:

Year of Mortgage

Early Repayment Charge 

(as a percentage of the outstanding mortgage balance)

1

4%

2

3%

3

2%

4

1%

5

For instance, if you have £100,000 left to pay on your mortgage with a 2% ERC in the third year, you’ll need to pay £2,000. However, if you wait until year four to switch deals or lenders, your charge will go down to 1% of the loan. Generally, the longer you wait, the lower the charge.

When it comes to overpayments, you’ll typically be charged on the proportion you pay that exceeds your annual overpayment allowance. If your allowance is £5,000 but your total overpayments are £11,000, then the charge will be applied to the excess £6,000 only.

The most common way of avoiding the ERC is to wait until the early repayment period ends before switching to a new mortgage deal. Additionally, you should only overpay within your lender’s allowed limit, which is around 10% of your mortgage balance annually.

Another option is to port your mortgage when you move houses. This process involves carrying over your existing mortgage deal to a new property. This allows you to skip the ERC, maintain the same interest rate, and keep the original terms of your deal.

You can also specifically look for a mortgage with no ERC. Make sure that you understand the conditions pertaining to this charge, and ask your lender or advisor to explain unclear terms. Consider arrangement fees and interest rates when deciding on the most cost-effective deal.

Yes, getting an easy exit, penalty-free, or no ERC mortgage is possible. However, this type of mortgage isn’t as widely available as other types, so you may have to look further than mainstream lenders to find the best deals.

What’s more, providers of no ERC mortgages tend to have more stringent criteria, with varying conditions, rates, and requirements. During your search, you’ll likely encounter variable-rate mortgages with fluctuating interest rates, which may not be suitable to your preferences.

Our specialist mortgage advisors can help you weigh the pros and cons of these arrangements. We can also review your file, assess your options, and get in touch with our broad network of lenders who are happy to consider you. Talk to one of our advisors to find the right deal today.

Here are several mortgage products to choose from that come with no ERC:

  • Fixed-rate mortgages: A fixed-rate mortgage has a set interest rate for a given period, allowing your repayments to remain constant. At the end of fixed-rate deals, you’ll be transferred to your lender’s standard variable rate.
  • Standard variable rate (SVR) mortgages: With a variable rate mortgage, the interest rates are determined by your lender and can change at any time. They commonly have no ERCs and minimal arrangement fees.
  • Tracker mortgages: These variable rate mortgages follow the Bank of England base rate. As such, your mortgage repayments can rise and fall on a monthly basis.
  • Buy-to-let mortgages: These mortgages are for individuals, such as landlords, who want to buy properties and rent them out to tenants. They come with strict eligibility criteria but provide you with the freedom to sell your investment properties anytime.
  • Equity release mortgages: These loans are usually for older borrowers who want to benefit from their home’s equity. They can come in the form of a lifetime mortgage or a home reversion mortgage.

If you only have a few years remaining on your term, some lenders may agree to waive the charges you’ll incur for moving to a different lender. This also applies if you switch to a new rate with the same lender.

You’ll need to speak to your lender’s mortgage repayment department and get the written authority that they agree to waive the ERC. It’s possible to negotiate the reduction of these fees when you’re paying off your loan as well.

If you believe that your lender has applied an unfair or excessive ERC, you can speak to your lender about waiving or refunding the charge. They’re obliged to give you their final response within eight weeks. You can also file a complaint with the Financial Ombudsman Service where necessary. 

Choosing a mortgage with no ERCs comes with numerous advantages, flexibility being one of them. This type of mortgage allows you to move homes, remortgage, switch lenders, and chase competitive deals without worrying about major penalties.

Additionally, this mortgage gives you the freedom to overpay as much as you want, so you can reach mortgage-free status earlier and quicker. It’s great for people with variable income, such as self-employed individuals and workers moving from contract to contract. 

You can freely increase your mortgage payments during high-income periods or after finding a better-paying client. This differs from mortgages with ERCs that only allow you to overpay by a limited amount, such as 10% per year, or else you’ll incur a hefty early repayment charge.

Higher interest rates are one of the downsides to this type of mortgage. Lenders typically raise the rates for mortgages with no ERCs to cover the risk of early repayment. This results in potentially higher monthly repayments and a more expensive mortgage overall.

Another possible downside is the additional fees that accompany this type of mortgage. Your lender may charge you with a pricey arrangement fee for setting up the loan. Plus, there are fewer lenders and deals to choose from, since mortgages with no ERCs are less common.

An experienced mortgage advisor at When The Bank Says No can locate the most competitive ERC deals on the market, which can be tricky to find on your own. We’ll also help you calculate and choose the most financially viable option based on your individual circumstances.

Mortgages with no ERCs present a higher amount of risk for lenders. To compensate for such risk, they’ll need additional evidence of your financial capacity. Stricter eligibility criteria can make it tough, but still possible, to qualify for this type of mortgage.

Some lenders will require a sizeable deposit and a low loan-to-value (LTV) ratio. If you’re unfamiliar with this concept, LTV is a measure that compares your borrowed amount to the appraised value of the mortgaged property. Generally, the lower the LTV ratio, the better.

Lenders may also ask for evidence of your earnings, affordability, and credit history. If you want to know more about lender requirements for mortgages with no early repayment charges, our expert mortgage advisors can provide helpful information and guide you toward the best deals.

If you’re interested in a mortgage with no ERCs, one of the first steps you can take is to outline your financial needs and preferences. For instance, are you looking for flexibility in making overpayments? Or maybe, you’re planning on remortgaging your home in the future.

Next, identify which lenders provide this type of mortgage and compare offers to find one that’s best suited to your needs. For this step, you might want to consider working with a trusted mortgage advisor or mortgage brokers to scan the market, like When The Bank Says No, to narrow your choices, and point you in the right direction.

You’ll also need to prepare relevant documents for your mortgage application, including an up-to-date credit report. If you’re unsure of the next steps, we can guide you through the application process and help you submit a strong application with a high chance of approval.

Your mortgage illustration, offer letter, and annual mortgage statement will tell you whether or not your mortgage has an ERC. It’s important to review these documents before making any extra payments on your mortgage to avoid incurring unexpected charges.

They’ll also show the provisions for calculating your ERC and any ERC payables that currently apply to you. If you want to learn more about your loan and the charges involved, speak to one of our trusted mortgage advisors. We’ll be happy to discuss ERCs and how to avoid them.

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