If you have a fixed rate mortgage, it’s likely that you may encounter an early repayment charge if you decide to pay off your mortgage before the term ends. This charge is in place because lenders set interest ratesbased on the assumption that you will borrow for the entire term, and the fee is designed to discourage you from paying off your mortgage early and leaving the lender.

** Link to Early repayment charges **

When will I be charged an ERC?

You may be charged an Early Repayment Charge (ERC) if you pay off more than your overpayment allowance or if you repay the mortgage entirely, either through remortgaging or paying off the mortgage before the agreed term.

Yes, it is possible to find mortgages without early repayment charges, although they may not be very common. Typically, mortgages without early repayment charges are found in tracker or variable rate products, although there may be exceptions.

Some mortgages without early repayment charges may have higher arrangement fees. This is because lenders often include early redemption penalties in standard mortgages to recoup potential losses if borrowers pay off their mortgage early. 

However, mortgages without early repayment charges may offset this by charging an upfront fee instead. It’s important to note that there may be exceptions to this general trend

Advantages and disadvantages of a mortgage with no ERC

There are several advantages to taking out a mortgage without early repayment charges (ERCs):

  • Flexibility to remortgage to a better rate: With no ERCs, you have the freedom to remortgage to a better interest rate if one becomes available without incurring any penalty charges. This allows you to take advantage of favorable market conditions and potentially save on your mortgage payments.
  • Ability to make overpayments: Most lenders impose a limit on the amount of overpayments you can make on your mortgage without incurring penalties, typically around 10% of the outstanding balance per year. However, with a mortgage without ERCs, you may have the flexibility to make larger overpayments, which can help you pay off your mortgage faster and potentially save on interest costs over the long term.
  • No penalty for clearing the mortgage from sale proceeds: If you decide to sell your property before the end of your mortgage term, having a mortgage without ERCs means you won’t face any penalty charges for paying off the mortgage with the proceeds from the sale. This gives you the freedom to sell your property without any financial penalties, providing more flexibility in your homeownership journey.
  • Increased financial freedom and control: Mortgages without ERCs provide you with greater financial freedom and control over your mortgage payments. You have more flexibility to manage your mortgage according to your changing financial circumstances, such as making larger repayments, remortgaging, or selling your property without incurring penalty charges.

Disadvantages of mortgages with no ERC’s 

There are some potential disadvantages to taking out a mortgage without early repayment charges (ERCs). These may include:

  • Higher interest rates: Since mortgages without ERCs may lack the penalty charges that compensate for potential losses incurred by lenders if borrowers pay off their mortgage early, they may come with higher interest rates. This could result in higher monthly mortgage payments and potentially increased overall interest costs over the life of the loan.
  • Higher fees: Some mortgages without ERCs may have higher arrangement fees or upfront costs to offset the lack of penalty charges. This could result in higher initial costs when compared to mortgages with ERCs.
  • Limited product choice: Mortgages without ERCs may have fewer options available in terms of product choice. They are often associated with tracker or variable rate products, which may limit your options if you prefer a different type of mortgage, such as a fixed-rate mortgage or an interest-only mortgage.

Types of mortgages available without ERC’s 

There are several types of mortgages that may be available with no early repayment charges (ERCs) or with low ERCs, including:

  • Flexible fixed-rate mortgages: While most fixed-rate mortgages typically come with ERCs, some lenders may offer flexible fixed-rate mortgages that allow borrowers to make overpayments or repay the mortgage early without incurring substantial penalty charges.
  • Tracker mortgages: Tracker mortgages are linked to an external benchmark, such as the Bank of England base rate, and the interest rate moves up or down in line with changes in the benchmark. Some tracker mortgages may come with little or no ERCs, providing borrowers with greater flexibility to repay or refinance without penalty charges.
  • Variable rate mortgages: Variable rate mortgages, which may have a variable interest rate that can fluctuate over the mortgage term, may also come with little or no ERCs. This can allow borrowers to have more flexibility in their mortgage payments and repayment options.
  • Standard variable rate (SVR) mortgages: SVR mortgages are the default rate offered by a lender after the initial fixed or tracker rate period ends. Some SVR mortgages may have no ERCs or very low ERCs, providing borrowers with greater flexibility in terms of repayment and refinancing options.
  • Buy-to-let mortgages: Some buy-to-let mortgages may come with no ERCs or low ERCs, providing flexibility for property investors who may want to repay or refinance their mortgage early or make changes to their investment portfolio.
  • Equity release mortgages: Equity release mortgages, which are designed for older homeowners to release equity from their property, may also have no ERCs or low ERCs, allowing borrowers to repay the mortgage early or make changes to their equity release plan without incurring significant penalty charges.

Mortgage lenders offering mortgages without ERC’s: Which lenders offer mortgages without early repayment charges?

Here are some examples of mortgage lenders that may offer mortgages with no early repayment charges (ERCs) or low ERCs include:

  • Coventry Building Society: Coventry Building Society is known for offering tracker mortgages with no ERCs, as well as buy-to-let mortgages with no ERCs. 
  • Barclays: Barclays is another lender that has been known to offer tracker mortgages with no ERCs.
  • Nationwide: Nationwide is also known to offer tracker mortgages with no ERCs, providing borrowers with greater flexibility in repaying or refinancing their mortgage without incurring penalty charges.
  • Leeds Building Society: Leeds Building Society has a mortgage product called “Flexit Mortgage” which is a fixed-rate mortgage with no ERCs. This product may provide borrowers with greater flexibility in repaying or refinancing their mortgage early without incurring penalty charges, subject to their terms and conditions.      

It’s worth noting that availability of mortgages without ERCs may vary depending on the lender, specific mortgage product, and individual eligibility criteria. It’s important to thoroughly review the terms and conditions of any mortgage offer and seek professional advice from a qualified mortgage advisor to determine the best option based on your individual financial situation and goals.

How can Strive Mortgages help?

As mortgages without early repayment charges (ERCs) may be less common, having a mortgage broker with first-hand knowledge and expertise in dealing with lenders that offer such products can be invaluable. A mortgage broker can help you navigate the market, identify lenders that offer mortgages without ERCs, and provide guidance on finding a suitable deal that aligns with your financial goals and circumstances.

A mortgage broker can also help you understand the terms and conditions associated with mortgages without ERCs, such as any potential trade-offs, such as higher rates or fees. They can assess your eligibility for these types of mortgages and help you make an informed decision based on your unique needs and financial situation.

For more information on mortgages without ERCs, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.

Frequently asked questions on mortgages with no ERCs

Can you avoid paying an ERC?

There are several strategies that borrowers can consider to potentially avoid early repayment charges (ERCs) on their mortgage:
Sticking within the lender’s overpayment allowances: Many mortgage lenders allow borrowers to make overpayments up to a certain percentage of the outstanding mortgage balance each year without incurring ERCs. By staying within these allowances, borrowers can reduce their mortgage balance faster without triggering any early repayment charges.
Porting the mortgage when moving home during a fixed-rate mortgage: Some mortgage lenders allow borrowers to “port” their mortgage, which means transferring their existing mortgage to a new property without incurring ERCs. This can be a way to avoid ERCs if you need to move home before the end of your fixed-rate mortgage term.
Exploring second charge mortgages: If your current lender does not allow you to remortgage to release funds or access additional borrowing, you may consider a second charge mortgage. This is a separate loan that sits alongside your existing mortgage and allows you to access additional funds without paying off your existing mortgage and incurring ERCs.

Will I be charged an ERC moving and taking a mortgage with me?

Porting your mortgage, which involves transferring your existing mortgage to a new property, can potentially help you avoid or reduce early repayment charges (ERCs) on your mortgage.
When you move home and port your mortgage, you essentially take your existing mortgage deal with you to the new property. This can be beneficial because it allows you to maintain the same terms, such as interest rate and remaining term, of your original mortgage without incurring ERCs. 
However, it’s important to note that not all mortgage lenders offer porting as an option, and those that do may have specific conditions and requirements that must be met.