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No Early Repayment Charges (ERC): A Comprehensive Guide

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    If you find a better mortgage deal than the one you are currently on, you have the option to remortgage to pay off your existing mortgage early. That’s great news, right?

    Well, yes and no. While you may be able to make significant savings by moving to a new mortgage, you may be stung by the early repayment charges set by your existing lender. These charges apply during the tie-in period of your contract and they are calculated as a percentage of the outstanding mortgage balance (usually between 1% and 5%).

    Early repayment charges might seem unfair but banks impose these for two reasons:

    • To discourage borrowers from jumping ship every time they find a better deal
    • To compensate for any losses they make when their customers leave them

    In certain circumstances, you don’t have to pay the early repayment charge (ERC), < as we discuss here.

    One way to avoid paying a penalty is to consider a mortgage with no early repayment fee. Interested? Keep reading to find out more.

    Introduction: Can you get any mortgages with no ERC?

    It is possible to get a mortgage with no early repayment charges and an experienced broker can point you in the right direction.

    But while these might seem like a good idea if you’re hoping to exit your mortgage deal early, there are a few drawbacks to consider.

    We discuss the pros and cons of mortgages without an early repayment charge below.

    Pros and Cons of Mortgages Without ERCs

    Nobody wants to pay additional fees on their mortgage, so choosing a deal with no early repayment charge (ERC) might seem like a good idea. There are certainly pros to doing so but there are a few disadvantages to consider too.

    Pros

    • You have the flexibility to leave your mortgage at any time – If you think you might need to move house in the near future or if you expect a windfall that will allow you to become mortgage-free (or if you simply find a great new mortgage deal), you will be able to avoid early repayment charges if you choose a no-ERC mortgage.
    • You can pay off your mortgage early – With most mortgage deals, you can overpay on your loan by up to 10% each year so you can clear your debt sooner. If you overpay by more than 10%, you will incur an early repayment charge.

    But with a mortgage with no early repayment charge, you can make unlimited overpayments so you can be mortgage-free much sooner! This is ideal if your financial situation improves, such as if you’re a self-employed person on a variable income who may be in a better position to pay more on the mortgage after finding a high-paying client.

    Cons

    • Your monthly repayments will be higher – Interest rates are higher on mortgages with no early repayment charges so you will be burdened with higher monthly repayments. Due to the higher interest rates, you will also pay more on your mortgage overall.
    • Your mortgage fees will be higher – A mortgage with no early repayment charge will typically come with higher fees, such as the admin fee you pay to your lender when they set up your mortgage.
    • Mortgages with no ERCs are hard to find – Only a select few lenders offer mortgages with no ERC so it can be hard to find the best deal. Don’t worry though as the team at YesCanDo can help. Give us a call and we will find the right deal for your circumstances.
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    Types of Mortgages Available Without ERCs

    You have a number of mortgage types to choose from if you want a loan where you don’t have to pay an exit fee. These include the following.

    Fixed-rate mortgages

    On a fixed-rate mortgage deal, the interest rate on your mortgage term is set for a given amount of time so your loan repayments won’t increase during the deal period. This can give you peace of mind as you won’t have to worry about any sudden price hikes.

    When your fixed deal ends, you will be moved onto your lender’s standard variable rate (SVR) which will mean an increase in your payments due to the increased interest. You can avoid this by remortgaging.

    An early repayment charge will usually apply if you decide to switch mortgages early. However, there are a small number of lenders who offer fixed-rate deals with no penalty charges, and we can put you in touch with these.

    Unfortunately, these deals are usually more expensive than fixed early repayment charge mortgages so this is something to take into consideration.

    Tracker mortgages

    A tracker mortgage is a type of variable-rate mortgage where your monthly repayments can go up and down depending on the Bank of England’s base rate.

    An early repayment charge will usually be imposed if you leave your tracker deal early, although this isn’t always the case and we can explain more if you choose to use our services.

    Standard variable rate (SVR) mortgages

    The SVR is the more expensive interest rate you move onto when your initial deal ends so your mortgage repayments will increase.

    It’s wise to arrange a new mortgage deal before you fall onto your lender’s standard variable rate and you can do this without being charged if you arrange for a new mortgage to start as your existing deal ends.

    If you do end up on your lender’s SVR, you are free to switch to a fixed-rate mortgage at any time, without being charged a penalty fee.

    Buy-to-let mortgages

    Landlords wanting the freedom to sell their properties at any time can benefit from mortgages with no ERCs. However, these usually come with strict criteria attached by the lender.

    No-ERC mortgages can include fixed-rate deals, tracker mortgages, interest-only loans, and discounted variable mortgages. If you’re hoping to get a mortgage for an investment property, we can discuss your options with you.

    Equity release mortgages

    Equity release mortgages are beneficial to people aged 55 and over who want to benefit from their home’s equity.

    There are two main types of equity release mortgages: Home Reversion mortgages and Lifetime mortgages. It is possible to get an equity release mortgage without an ERC so talk to us to learn more.

    Finding the Right Mortgage Deal Without ERCs: How a broker can help you find the best mortgages with no early repayment charges

    Whether you’re looking for residential mortgages or buy-to-let mortgages with no early redemption charges, the team at YesCanDo Money can definitely help you. We know which lenders offer non-ERC deals and we can make sure you get the best deal with the lowest rate of interest for somebody with your set of circumstances.

    But as these mortgages are generally more expensive than typical ERC mortgages, you do need to consider which option is better for you. Our advisers can help you in this regard as they will help you to understand which is financially beneficial for you.

    If you’re sure you want to get a mortgage with no early penalty charge, your appointed adviser will help you with the mortgage application to enhance your chances of approval. We will do the same for you if you decide to stick with a standard ERC mortgage so whatever you choose, we are here to support you.

    Get in touch and we will match you with a member of our team who has experience with residential mortgages as well as buy-to-let mortgages with no early redemption charges

    Eligibility Criteria: Are there stricter requirements for mortgages without ERCs?

    As we suggested, mortgages without ERCs do come with stricter criteria. You will need to put down a sizeable deposit to reduce your loan to value and your financial situation will be heavily scrutinised.

    We can discuss lender requirements with you so you know what to expect when you apply for a mortgage without an early redemption charge.

    Mortgage Lenders Offering Mortgages Without ERCs: Which lenders offer mortgages without early repayment charges?

    A number of lenders offer mortgages without ERCs.

    • Leeds Building Society currently offers a fixed-rate mortgage with no unlimited overpayments and no ERCs.
    • Newcastle Building Society and Kent Alliance currently offer discount mortgages with no ERCs attached.
    • Barclays and Axis Specialist Finance currently offer tracker mortgage deals with no redemption fees.

    To learn more about their deals and to get up-to-date information on any other mortgage lender that offers mortgages without an early redemption charge, get in touch with an experienced broker from our team to explore all the options open to you.

    Getting Expert Help: How to find a broker experienced in mortgages without ERCs

    Mortgages without an early redemption charge are difficult to find and so too are the mortgage brokers with experience in them.

    But if you’re looking for a mortgage broker who does have experience with these types of mortgages, YesCanDo Money can help! We know which lenders offer non-early redemption charge deals, so can help you find a mortgage that is right for your particular situation.

    Get in touch with us via WhatsApp or phone (033 0088 4407) or use our contact form below to arrange a call-back from a member of our team.

    FAQs

    As we have discussed in this article, not all mortgages have an early repayment charge. You may get a better deal if you opt for a mortgage that does have an ERC, but if you want to avoid a penalty, good deals can still be found on fixed-rate mortgages, buy-to-let mortgages, and other types of mortgages that have no early repayment charge attached.

    Yes! Other than getting a mortgage without an early redemption charge, you will avoid the charge if you...

    • Stick to the agreed limit when overpaying on your loan

    • Port your mortgage instead of switching deals when moving to a new property

    • Add the repayment charge to your new mortgage if you remortgage

    • Wait until near the end of your incentive period before you remortgage

    If the lower interest rate on a new deal outweighs the cost of the penalty charge, then it might be worth paying it. However, you need to factor in the other fees charged by the new lender as these can make a new mortgage more expensive. If you're nearing the end of the early redemption charge period, it might be worth waiting a few months before switching.

    If you're moving to a new property and you want to take your mortgage with you (this is called porting your mortgage), you may have to pay a penalty if there is a delay between selling your house and buying a new property. If you are charged this fee, your lender might refund it if your sale goes through within a set period of time.

    Many lenders permit overpayments over a 12-month period but the degree to which you will be allowed to overpay will depend on the lender. Most lenders allow for up to 10% but it may be possible to find a lender who will let you pay more. Newbury Building Society, for example, allows 20% overpayments each year.

    You will usually be asked to pay a penalty if you go over the overpayment limit but there are a small number of lenders who offer penalty-free overpayments, such as Together.

    If you have a loan with an early repayment charge, you will have to pay this penalty if you...

    • Go beyond the overpayment limit

    • Pay off your loan with a lump sum before your existing deal is over

    • Remortgage before your current deal ends

    The typical amount charged will be between 1-5% of your outstanding balance. On a 5-year fixed deal, for example, it will be 5% in the first year, 4% in the second year, 3% in the third year, and so on!

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    Steve Roberts
    Steve Roberts

    Stephen Roberts MAQ is the founder of YesCanDo Money, one of the UK's largest no-fee mortgage brokers. With over 30 years of mortgage experience, he has advised and helped thousands of first-time buyers buy their first home and home movers buy their dream home. Speak to a mortgage expert today by completing our contact form:

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