Watch out for these charges when paying back your mortgage.
With all debts, it’s generally a good idea to clear them in full as quickly as you can. However, with a mortgage paying it off ahead of schedule - or even paying more than you are scheduled to on a monthly basis - can land you with an Early Repayment Charge (ERC).
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Overpayments
When you set up a mortgage, you make monthly repayments to the lender. If you can afford to, it can be a good idea to increase the size of that repayment. It means that you will pay off the mortgage quicker, saving yourself thousands of pounds in interest charges in the process.
Most lenders allow borrowers to overpay by up to 10% of their outstanding debt per year while you are in the initial fixed or tracker period. To work out this amount, use the figure given in your annual mortgage statement and divide it by 10.
Overpay by more than that and you will have to pay an ERC.
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Moving lender or deal
Most mortgages come with an initial fixed or tracker term. For example, with a two-year fixed rate mortgage, your repayments are fixed for two years, before you then move onto the lender’s standard variable rate.
If you opt to switch to a different lender during this initial term, you will likely have to pay an ERC.
If you are close to the end of a fixed-term deal with a lender, you may be able to haggle and get the ERC waived. To be successful, you’d probably need to be moving to a new deal with the same lender, not a rival.
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How much do ERCs cost?
The cost of an ERC will depend on who your lender is. Some lenders will charge a fixed fee and some will charge a percentage of the remaining mortgage. Some will charge both!
But there are also those that will not charge you for overpayments. Deals that offer this tend to be variable rate.
If a provider offers this and has happy customers too, this could be a real money-saver. This does of course depend how much you can afford to overpay each month.
