Early Repayment Charges
Early repayment charges (ERCs) are fees that may be charged by a lender if a borrower pays off their mortgage before the end of the agreed term. These charges are designed to compensate the lender for the interest they lose due to the early repayment.
What is an Early Repayment Charge (EPC)?
In the property market, early repayment charges are a significant consideration for homeowners thinking about paying off their mortgage early, refinancing, or selling their property. ERCs are typically a percentage of the loan amount and can vary depending on the lender's policies, the type of mortgage, and how much of the mortgage term remains.
The rationale behind ERCs is that lenders expect to receive a certain amount of interest over the life of a mortgage. When a borrower repays early, especially in the case of fixed-rate or discounted mortgages, the lender loses out on this expected interest. Therefore, ERCs are put in place to recover some of this lost income.
Not all mortgage products come with early repayment charges; they are more common in fixed-rate, tracker, and discount mortgages, where the lender offers a lower rate in exchange for stability over a certain period. The specifics of any ERCs, including when they apply and how they are calculated, should be clearly outlined in the mortgage agreement.
Frequently Asked Questions
Early Repayment Charges is a term that you may have heard before, but you might not be sure what it means. Here are some common questions and answers to help you understand what it means.
