Is It Worth Paying an Early Repayment Charge to Overpay More?
This guide is for general information only and does not provide financial advice. Check your lender’s terms before overpaying, as early repayment charges may apply. Your home may be repossessed if you do not keep up repayments on your mortgage.
Sometimes the interest an extra overpayment could save is more than the early repayment charge, and sometimes it is not. It depends on the size of the charge, how long is left on your deal, your interest rate and what happens to your rate afterwards. This guide shows how to compare the two. It is not a recommendation, because the answer depends on your figures.
If you are not sure what an early repayment charge is, start with what is an early repayment charge? To estimate a charge with your own figures, use our early repayment charge calculator.
The two things to compare
- The cost: the charge your lender would apply. Your mortgage offer gives the percentage; ask your lender for the exact figure.
- The benefit: the interest the extra payment could save, which depends on how much you pay, your rate and how long the saving lasts.
A worked example
This illustrative example uses a £200,000 balance at 4.5% with 25 years remaining, and an extra £5,000 paid with the first payment that takes you £5,000 over the lender’s yearly allowance. It assumes the rate stays the same and ignores fees. Paying £5,000 now could save the following interest, depending on how long the saving is counted.
| Over | Estimated interest saved |
|---|---|
| the first 1 year | about £210 |
| the first 2 years | about £450 |
| the first 5 years | about £1,236 |
| the whole 25 years | about £9,956 |
Next, the charge. Charges vary by lender and deal, so the percentages below are for illustration only.
| Charge percentage | Estimated charge |
|---|---|
| 1% | £50 |
| 3% | £150 |
| 5% | £250 |
In this example, a 3% charge would be £150 and a 5% charge £250. Compare a charge with the interest saved over the period you care about: a lower saving, a shorter time left on the deal or a higher charge can reverse the comparison, and other costs, such as fees, are not included. If your rate is fixed for the deal, the saving during the deal depends least on future rates; after the deal ends it depends on the rate you move to. Figures are estimates from this site’s calculator.
Things that can change the answer
- How long is left on the deal: a charge that may step down through the deal could be smaller later, and may not apply once the deal ends.
- Your rate afterwards: if your rate falls or rises, the interest saved changes.
- Whether you need the money: money you overpay is usually hard to get back. See should I overpay my mortgage?
- The alternative: waiting until the deal ends, or overpaying within your allowance, may avoid the charge altogether.
If you are unsure, consider speaking to a regulated mortgage adviser before you pay.
Questions people ask
Should I pay an early repayment charge to remortgage early?
It depends on the size of the charge, how long is left on your deal and what a new deal could save you. Compare the charge with the difference in costs before you decide, and consider speaking to a regulated mortgage adviser.
Is an early repayment charge always a bad thing?
Not necessarily. A charge is a cost to weigh against what you may gain, such as interest saved or a better deal. Whether it is worth paying depends on your figures and circumstances.
Can I find out the exact charge before I pay?
Yes. Ask your lender for the figure, and ask for it in writing, before you make a payment or leave a deal. The charge in your mortgage offer is the one that applies to you.
Where to go next
See the UK mortgage overpayment cap and when your allowance resets.