Early repayment

Early repayment charges, explained

Repaying a loan earlier than planned sounds like it should always be cheaper, but depending on the product it can trigger a specific charge. Knowing where these charges apply — and where they don't — avoids an unwelcome surprise.

Category: Costs & pricing

Product: Commercial Loans

Fixed-rate mortgages: Commonly carry an ERC during the fixed period
Bridging loans: Often no ERC, sometimes a minimum term charge
Business loans: Varies by product and lender
ERC scale: Often reduces the longer you've held the loan

Why ERCs exist at all

Lenders price fixed-rate products based on funding costs over the fixed period, so an early exit disrupts that arrangement. An early repayment charge compensates the lender for the shortfall, and is standard across much of the fixed-rate mortgage market rather than something unique to any one lender.

How ERCs typically work on commercial mortgages

Charges commonly scale down the longer you've held the loan — for example, a higher percentage in year one of a fixed period, reducing each subsequent year. Some lenders instead calculate the charge based on the actual funding cost difference, which can be harder to predict in advance but is sometimes lower in a falling-rate environment.

Bridging loans and minimum term charges

Most bridging products don't carry a traditional ERC, since lenders generally want you to redeem promptly. However, some do include a minimum term charge — for example, a minimum of three months' interest even if you redeem sooner — so check this specifically rather than assuming bridging is always penalty-free.

Business loans and settlement costs

Some fixed-fee business loans calculate the total interest cost upfront regardless of when you repay, meaning there's little or no saving from early settlement. Others charge daily interest, where early repayment genuinely reduces the total cost. This distinction is easy to miss when comparing headline offers, so always ask directly.

Frequently asked

Can I ever avoid an ERC if my plans change?

Sometimes a lender will allow a partial overpayment each year without charge, or offer a product transfer instead of a full redemption, which can reduce or avoid the charge. Worth discussing with us before assuming redemption is the only option.

Do ERCs apply to variable-rate loans?

Less commonly — variable and tracker products are generally more flexible on early repayment, since the lender hasn't fixed its funding cost for a set period. Always check the specific product terms though, as exceptions exist.

How is the ERC amount usually calculated?

Either as a fixed percentage of the outstanding balance that reduces over time, or as a calculation based on the lender's actual funding cost difference — the offer letter should set out which method applies to your loan.

Does refinancing early always trigger a charge?

Not always — some loans allow refinancing without penalty near the end of the fixed period, or after an initial charge-free window. We check this before recommending a refinance timeline.

Should I choose a product without an ERC even if the rate is higher?

It depends on how likely you are to need flexibility. If a sale or refinance within the fixed term is a realistic possibility, a slightly higher rate without an ERC can work out cheaper overall — we'll model both scenarios with you.

Check your exposure to early repayment charges

Call 0345 2690628 before refinancing or redeeming a facility early.

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