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Mortgage with no early repayment charge

An early repayment charge (ERC) is very common in mortgages when someone takes a new mortgage deal. Usually for a lender to offer a ‘special rate’ (e.g. fixed rate or discount rate) they will offset that by including a charge for repaying the mortgage early.

There are many reasons why you might want to settle or switch your mortgage before the end of a special rate period.

Some of the common reasons for early repayment:

It may be a decision that you will need to make, whether it would be worth satisfying your mortgage early and paying any charges.

There are however, some mortgage lenders and deals that simply do not include early repayment charges. If you feel that you may need to settle or move your mortgage within a short period of time, then this may be a good option.

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What are mortgages with no early repayment charges?

A mortgage with no ERC will generally have a slightly higher or different rate to a special rate that has a charge. The type of interest rate charged on a mortgage can effect whether ERCs will be in place as standard.

One of the most common types of mortgages that will have an ERC is a Fixed Rate deal, which might not be available with no charge for early repayment. This is simply because a special rate, such as a fixed rate, will be less profitable for a lender and therefore needs to include an early repayment charge.

The most common types of mortgages that have no ERC’s will be either discount or tracker mortgages. Each lender has their own terms and criteria for lending and therefore deals will vary from one lender to another.

In simple terms, a mortgage with no ERC means that you can settle or switch it from Day 1 with no penalty charges.

What is an Early Repayment Charge?

A standard Early Repayment Charge will usually be a percentage of the outstanding mortgage balance (Example: 2% of remaining balance). You would need to pay this at the point of repaying your mortgage, so at the end of the remortgage or sale of a property.

It is also common for an ERC to reduce over a period of time, so they may be higher at the beginning and then reduce over 12 months or 2 years.

An early repayment charge will also only usually apply for the period of the fixed or discount rate (e.g. 2, 3, 4 or 5 years).

What does no early repayment charge mean?

A no early repayment mortgage (or ‘no ERC mortgage’) is a normal mortgage loan in the sense that it is a debt secured against a property. The only difference is that there is no charge for repaying or replacing your mortgage early.

Early repayment charges are also sometimes called early redemption fees, which are typically between 1% and 5% of the remaining mortgage balance.

If you take out no early repayment charge then you would be able to repay your mortgage with no charge from the very first month. When you pay off your mortgage, you would simply need to repay the mortgage balance plus any outstanding interest.

Can I get a mortgage with no early repayment charges?

There are a number of lenders and deals that offer mortgages with no early repayment charges, so the any is almost certainly, yes you can.

Often there will be different limitations and criteria for mortgages with no early repayment charges, so options will be more limited. Each lender will have their own requirements for this type of loan and its own limitations.

Main advantages of mortgages with no ERC’s

  • Flexible: these mortgages have no restrictions for early repayment and so gives the borrower options to remortgage without penalty
  • Overpayments: for borrowers wanting to overpay more than 10% per year, this allows this option without any penalty or charge

Main disadvantages of mortgages with no ERC’s

  • Higher rates: it is often the case that mortgages with no ERC’s are higher rates than special rates or incentive rates
  • Less choice and options: you would often have less choice of rates and deals when applying for a mortgage with no early repayment charge
  • More difficult to apply for: there will often be higher limits and more restrictions for applicants which may make them unsuitable or not possible

Best mortgages with no early repayment charges

There are still plenty of options when looking for a mortgage with no ERC, even though there won’t be as many as standard loans.

  • Interest only mortgage with no early repayment charge is most common in the buy to let space, where borrowers will often have multiple properties and need flexibility
  • Fixed rates mortgage with no early repayment charge will be more popular as it gives flexibility and some security from the fixed rates. Often the fixed rates will be higher than the deals that have an ERC attached to them. These types of loans are also often quite rare and sometimes may not be available at all
  • First time buyer mortgage with no early repayment charge can be an option from some lenders and on certain deals. This is also often quite rare because of the amount of security that lenders would look for with FTB deals
  • Buy to let mortgages with no early repayment charge will often be appealing to portfolio landlords who switch and move property investment regularly. Some lenders might offer this as part of a portfolio rate or for a multi-property landlord with a large portfolio
  • Residential mortgage with no early repayment charge is the most common situation for this type of mortgage deal. This is simply where a residential mortgage borrower requires greater flexibility in there mortgage deal

Other fees for mortgages with no early repayment charge

There are also several other fees that you’ll need to be mindful of when you are completing a mortgage application for a mortgage with no ERC.

Most common mortgage fees:

  • Lender fees are common for most mortgages which are the fees that a lender charges to apply your mortgage rate
  • Mortgage administration charges are a common small processing charge for new mortgages and remortgages
  • Mortgage broker fees are charged by most mortgage brokers and mortgage advisors for their services
  • Stamp Duty will be payable on a property purchase where the stamp duty applies due to property purchase price

There are also other charges that are not specific to a mortgage that may be payable, such as conveyancing, estate agency and removal costs.

Useful resources

Citizen’s Advice – Paying off a credit agreement early

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