Getting a Mortgage With No Early Repayment Charges

The cost of an ERC varies on a case-by-case basis:

• Some lenders charge a flat fee

• Others charge a percentage fee based on the outstanding balance

• Some lenders charge a combination of flat fee + percentage based charge

Many of the most popular high street banks take the percentage-based approach, though the ERC percentage they charge reduces over time.

For example, if you remortgage or pay out your mortgage during the first year, the ERC will be 2% of your outstanding balance. Then it will go down to 1% in the second year and be waived entirely in the third year of your mortgage.

Determining whether to pay your ERCs and remortgage with a better deal or wait out your tie-in period can be tricky. There are many factors to consider, and paying out may not always be the best course of action.

Here are the most important considerations you need to pay attention to and figure out the best option in your personal circumstance.

• ERC amount – Assess the specific amount of ERCs you would need to pay. Calculate the charges and compare them to the potential savings you could achieve by remortgaging to a better deal. If the savings outweigh the ERCs, it might be financially beneficial to pay them and proceed with remortgaging.

• Interest rate differential – Compare your current interest rate with the rates available in the market. For example, if the interest rates have significantly decreased since you obtained your mortgage, it might be advantageous to remortgage, even if it means paying ERCs.

• Remaining tie-in period – Evaluate the remaining duration of the tie-in period. If the end of the tie-in period is relatively near, it might be worth waiting until it expires to avoid paying ERCs.

• Future rate changes – Consider the possibility of future interest rate changes. If you anticipate interest rates rising, it might be more beneficial to secure a new mortgage deal with a lower rate sooner rather than later.

• Overall financial situation – Consider your overall financial situation, including your long-term goals, affordability, and potential savings from remortgaging. Consider factors like loan terms, fees, and potential future financial plans.

Alternatively, if you haven’t got your mortgage yet, you should know that there are specific types of mortgages that never charge an ERC.

SVR mortgages have the lender’s default interest rates, and while they fluctuate based on market conditions, lenders can also increase and decrease them on their own. As such, SVR mortgages have some of the higher interest rates on the market.

Lenders generally offer mortgages with an initial deal period where borrowers pay lower interest rates, and the SVR only activates when the deal period is over. While their interest rates may be unfavourable, SVR mortgages usually have no ERCs attached.

As a result, most borrowers remortgage after their introductory period is over and when the SVR kicks in, thus avoiding paying ERCs.

Tracker mortgages are somewhat similar to SVR mortgages, as they also fluctuate. However, rather than being left at the lenders’ discretion, tracker mortgages are usually tied to the Bank of England’s rate, making them significantly more stable.

In most cases, tracker rates are included in a mortgage deal for a limited time only, after which the previously mentioned SVR activates. In such cases, you will likely be charged an ERC if you try to pay your mortgage while the deal period still lasts.

However, although they are not very common, a few tracker mortgages, like the lifetime tracker, have no ERCs. Most lifetime tracker mortgages offer an option to overpay without incurring early repayment fees.

As you can probably tell by the name, fixed-rate mortgages come with fixed interest rates, giving borrowers the certainty of paying the same amount every month. However, almost no mortgage has fixed rates permanently, and they are usually part of an introductory deal.

Moreover, finding a fixed-rate mortgage with no ERCs can be even more difficult, and only a few lenders in the entire market offer such options. Furthermore, they usually have higher arrangement fees as a trade-off for waiving the ERC.

Just like with the tracker rate, the best way to avoid paying the ERC if you are on a fixed-rate deal is to wait for the SVR to take place and only then leave your mortgage.

Buy-to-Let mortgages are specifically designed for borrowers who purchase residential properties intending to let them out to tenants. Since they are primarily used for investment purposes, they are subject to different tax implications and affordability criteria, making them stand out from the other types of mortgages.

Given the nature of property management, and all the buying and selling involved, buy-to-let mortgages with no ERCs are highly sought after, but unfortunately, they are not that common on the market.

There are some no ERC buy-to-let mortgages, though they are usually dependent on meeting strict criteria and may have other specific requirements or higher interest rates than traditional residential mortgages.

Equity release mortgages are aimed at older homeowners who want to release some of the equity tied up in their property. These mortgages allow individuals to access the value of their homes without having to sell them.

Considering the unique features of equity-release mortgages, it’s hard to imagine that too many of their borrowers are rushing to finish paying them early. As a result, there aren’t too many no ERC equity release mortgages available on the market.

Most lenders make exceptions in specific circumstances, like when the homeowner passes away, or the house is getting sold, and waive the ERCs.

You can start by researching various lenders and financial institutions that offer mortgages in your area and then extend your scope if necessary. Look for lenders that explicitly advertise mortgage products without ERCs or those that provide flexible repayment options.

• Visit lender websites – The easiest way to research is by exploring the websites of potential lenders and gathering information about the mortgage products they offer. Look for specific details regarding ERCs, such as whether they have a particular time period during which ERCs are applicable or if they waive ERCs entirely.

• Contact lenders directly – Beyond browsing their websites, remember to also reach out to lenders via phone or email to inquire about their mortgage options. Ask specific questions about the presence or absence of ERCs and gather any additional details about their mortgage products.

• Seek recommendations – Don’t limit yourself to the internet; try to get word-of-mouth recommendations from friends, family, or colleagues who have recently obtained mortgages. They may be able to provide insights into lenders that offer mortgages without ERCs or share their own positive experiences.

Once you have identified potential lenders, compare the mortgage products they offer to find those that do not have ERCs. Pay attention to the terms and conditions, interest rates, repayment periods, and any fees or penalties associated with early repayment.

• Review product details – Thoroughly review the information provided by each lender regarding their mortgage products. Look for clear statements indicating the absence of ERCs or terms that offer flexibility in early repayment.

• Consider other factors – In addition to ERCs, consider other factors such as interest rates, loan-to-value ratio, and repayment terms. Assess the overall suitability of the mortgage products for your financial situation and long-term goals.

• Use comparison tools – Utilize online mortgage comparison tools or consult with a mortgage broker to compare multiple mortgage products side by side. These resources can help you identify lenders that provide mortgages without ERCs and evaluate their features more effectively.