Mortgages with no early repayment charge

Mortgages with no early repayment charge

This guide will help you learn more about mortgages that don’t have an early repayment charge (ERCs). This guide will explain the pros and cons of each type, as well as how to compare deals to help you find the best mortgage with no early repayment charges.

Are you looking for a mortgage with no repayment fees? Or do you have questions? Contact us for mortgage advice – One of our experts will be happy to assist you.

We have a few mortgage providers lending early repayment charge mortgages, and fixed-rate mortgages. We offer free, no-obligation mortgage advice.

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No early repayment charge mortgages: What are they?

Mortgages with no early repayment charges (also called ‘no-ERC mortgages’) do not charge you for paying off your loan early or overpaying. Redemption fees, also known as redemption charges or redemption fees, are a portion of the loan that is charged for early repayment. They usually range from 1-5%. Charges can vary depending on how much you borrowed.

This is typically incurred if your mortgage is ‘exit’ before the due date (if you’re looking to port a mortgage, there is no ERC, as you will be continuing with your existing deal) or if the overpayment exceeds the maximum amount that you are allowed to overpay. These fees can be added to the standard exit fees charged by your lender, which can reach several hundred pounds.

These charges exist because lenders make less interest if you pay your loan off sooner. Early repayment fees partly discourage you from switching to a better deal. While lenders cannot stop you from moving or repaying your mortgage, they can discourage you by charging fees.

ERC fees are quite common. They can be found on both fixed-rate and tracker loans. You will not see them on the standard variable mortgage (SVR). Although rare, fixed mortgages that do not have an early repayment fee are still available.

 

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ERCs are often given in a range (i.e. Above 10% or 20%)

The most important thing to remember the maximum overpayments are.

Many mortgages allow you to pay 10% more than the actual amount and less than 20% less. This is commonly known as an “overpayment allowance”. However, some mortgages allow you to pay as much as you like (i.e. You must pay off your entire mortgage balance.

Your mortgage offer documents will always disclose early repayment fees. If in doubt, ask.

ERCs are a compromise

ERCs can be thought of as a compromise for a great mortgage deal. Your lender may require you to commit for several years to get a better rate. In exchange for a lack of flexibility, your lender will ‘lock you in at a lower rate.

ERCs can be reduced over the mortgage term

ERCs may decrease over time in some cases. For example, they could drop to 1% after the fifth year and start at 5% in the first year. You could also opt for a 10-year deal where you only pay an ERC for the first five years.

Your ERC will increase the longer you leave on your introductory agreement. This is especially true for fixed-term deals that are longer-term.

ERCs can be costly

An example: A 2% ERC (which isn’t uncommon) on a £150,000 loan would run you £3000.

 

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Is it possible for a mortgage to be obtained with no early repayment fees?

Certainly. No early repayment charge mortgages are common in the UK. However, the type of mortgage you choose will determine whether or not you can obtain one. There are no ERC deals for certain types of mortgages than others.

What are the benefits of mortgages without an ERC?

A no ERC mortgage has many benefits. Here are a few.

They provide flexibility if you want to finish your mortgage early

People who want flexibility or don’t want to be locked into a mortgage are especially attracted to mortgages that do not have early repayment fees. They allow you to remortgage with no significant penalty. This is especially helpful if you plan to move shortly.

A second example is those with variable incomes, such as those who apply for a mortgage but are self-employed. It is possible to pay more during higher income periods to help save a lot of interest.

If you can overpay, they could save you money.

A deal with no early repayment fees could be an option if you believe you can pay off your mortgage a few years earlier than you would with a conventional mortgage.

This is how it works: You compare the cost of the early repayment fee with interest you would have received if you had paid your mortgage off earlier.

 

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What are the drawbacks of mortgages without an ERC?

Not everyone can afford mortgages that have no early repayment fees. Here are some reasons why.

They can be more expensive

The problem? These items are more expensive.

Interest rates for ERC mortgages are generally lower than those of conventional ones. Additional arrangement fees may be charged at the beginning of the loan.

These can be harder to obtain.

Customers with higher credit scores, larger deposits and better credit are eligible for lower interest rates. Many ERC mortgages do not have strict borrowing requirements.

Sometimes, these can make it more difficult to obtain them, but a great broker (like the one we work with) can help you find the best deal by searching the entire market.

What are the various types of no ERC mortgages?

Below are some examples.

Mortgages with no interest charges for early repayment

Interest-only mortgages without an early repayment charge are popular in the Buy to Let sector due to their flexibility and lower cost.

Reminder: Interest-only mortgages allow for a reduction in monthly payments. However, you must pay only the interest. The principal balance is due at the end.

Mortgages are not subject to early repayment penalties

The Offset Mortgage allows you to offset your interest payments by keeping your money in a bank account linked to your mortgage.

There are currently no offset mortgages available with no early repayment fees.

Tracker mortgages with no early repayment fee

Tracker mortgages with no early payment fees are very common, especially for standard variable rate (SVR) mortgages.

Most lenders will have an SVR you’ll be on once your fixed-rate deal expires. These deals don’t have ERCs in the majority, so you can switch to a better deal without being penalised.

However, it’s important to be aware of any ‘overhangs’ periods in which the early repayment fee still applies after you have moved onto your SVR. Although this is less common nowadays, it’s something to watch out for.

Other types of tracker mortgages available do not require ERCs. However, this is less common than SVRs.

Read more about tracker mortgages in our guide

Fixed-rate mortgages without early repayment charges

Traditionally, no early repayment charges fixed mortgages were one of the rarer types of no ERC mortgage.

ERCs are considered a part of fixed-rate mortgages. Most often, your lender wanted to ensure you committed to the rate you received on your fix.

The last few years have seen several lenders offer fixed mortgages without an ERC.

There are only a few no ERC mortgages available at the time of writing. Many lenders, especially smaller ones, offer them at tracker or discounted rates.

You can find out more about mortgage lending.

ERC mortgages are not available for equity release or lifetime.

Equity release programs work, ERC mortgages are much less common in this region. The typical lifetime mortgage customer does not intend to repay their loan within this lifetime.

There are a few ERC equity release mortgages that can be obtained. Our guide to equity releases will help you learn more.

 

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You should be aware of other fees when you are paying a fixed rate, and there is no early repayment fee

These types of mortgages can lead to higher arrangement fees than the average.

You should be aware of additional fees when you take out a fixed-rate mortgage without an early repayment fee. These fees include arrangement fees, mortgage exit fees, and completion fees. All of these fees can add up to four figures. These fees can be paid upfront or added to your mortgage loan.

Mortgages to buy and let with no early repayment charges

Mortgages for buy-to-let are very popular in BTL. Refinances are a common option for landlords, for example, to make more money for other investments.

BTL mortgages without an ERC are more expensive than those with ERCs.

You can also have stricter criteria for no ERC buy-to-let – such as a higher deposit, a lower annual income or a stronger credit history.

Mortgages available for purchase with no early repayment charges

Let to Buy is not confused with “buy to let” and allows you to rent out the ‘old property’ to help you pay your mortgage.

There are only a few no ERC mortgages available at the time of writing. Many lenders, especially smaller ones, offer them at tracker or discounted rates.

You can find out more about mortgages.

ERC mortgages are not available for equity release or lifetime.

Because equity release programs work, ERC mortgages are much less common in this region. The typical lifetime mortgage customer does not intend to repay their loan within this lifetime.

There are a few ERC equity release mortgages that can be obtained. Our guide to equity releases will help you learn more.

 

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Where can I find an ERC-free mortgage comparison?

Talking to one of our expert brokers is the best way to compare mortgages without an early repayment fee.

Here are some reasons:

Online rate tables can be neither reliable nor thorough.

Online rate tables do not tailor to your borrowing profile. Sponsored products are often more prominently placed than those on the table. They rarely include all of the markets.

Do-it-yourself is time-consuming and can lead to a loss of money.

You can make your comparisons, but it will require much effort and time. Even then, you won’t have access to the entire market. You might overlook a less obvious deal or only available to brokers, which could have saved you money.

A DIY no early repayment fee mortgage comparison can add to your credit score.

 

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What is the best way to remortgage without an early repayment fee?

If you have a mortgage that has early replacement charges, you cannot do anything but wait out the ERC period. This could be for the remainder of your mortgage term, or it could be for just a few years.

You should remember that your ERC could still help you save money. Examples include changing to a better-rate mortgage or paying off your mortgage earlier.

What are the best ways to find the best mortgage without paying an early repayment fee?

People with good credit, large deposits, and substantial incomes will likely get the best mortgage rates without an early repayment fee.

However, mortgage deals still don’t have an early repayment fee, even if your application doesn’t meet all the lender’s requirements.

Your lender will consider you a low-risk borrower to help you get a loan. You can help this by doing a few things. Below are some examples.

Reduce your loan’s value

Your potential lender will lend you less if your deposit is larger than your other borrowings. This makes it easier for more cautious lenders to accept your application.

Pay attention to your credit history

Lenders pay close attention to your credit history. The number on your credit score is a measure of your creditworthiness. Bad credit history doesn’t necessarily have to mean you are out of luck, but it can limit your options.

If you want to know more, look at our guide on getting a mortgage with poor credit.

Talk to a mortgage broker who specialises in no early repayment charge mortgages

Whole-of-market mortgage brokers, great experts that we work with, can search the entire market for you, including broker-only mortgage lenders and other deals that may not be open to the public.

This means that if you find a non-ERC mortgage deal, they will help you to get it.

Get in touch with a mortgage expert

who will not charge you an early repayment fee. We are available to answer your questions regarding the best no ERC mortgages.

Relax, and contact us to find the best mortgage expert and mortgage deal for you. There is no charge and no marks or obligations on your credit rating.

 

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