An early repayment charge is applied to some mortgages if the borrower decides to repay the entire loan sooner than the date originally agreed with the lender. However, the term during which an early repayment charge would be applied does not run for the whole loan period. It typically lasts for the length of time a deal is fixed for between the lender and the person accepting the loan.
For example, if you opted for a two-year fixed rate mortgage that would then switch to the standard variable rate for that lender, you would likely need to pay an early repayment charge if you wanted to repay the loan within that two-year period. However, loans do vary, so it is important to make sure you read the small print and to ask about any charge that may be applied should you decide to repay the loan in full.
This charge may also be in force if you pay more than the required monthly amount during a specified period. Again, the mortgage paperwork would indicate if this is the case and highlight what the charge would be.
It is possible to avoid such charges in two ways. Firstly, some loans do not have these charges attached, so you could search for a deal with a ‘no ERC’ rule attached. Secondly, you could simply plan to pay off part or all your mortgage after the specified period has ended. The charge will always apply to the agreed term of the deal you are on. It would not usually be applied if you have finished the deal and the lender’s standard variable rate is now in force for your mortgage.