What is an...

Early Repayment Penalty

An Early Redemption Penalty (also known as an Early Repayment Charge or ERC) is a fee you may be required to make to a lender if you pay off a loan or mortgage before the scheduled term of the credit facility, also sometimes referred to as a Redemption Penalty. Usually the amount is equivalent to one or two months’ interest, but can be much more on a mortgage.

Typically, the earlier in the credit agreement you repay the loan, the higher the charge as the interest component of the loan repayment makes up a higher proportion of the repayment, the earlier in the loan term it is. An early repayment penalty can sometimes add a considerable cost to your loan.

Any such charges must legally be outlined in the Schumer Box before you apply for a loan. If you feel that you are likely to pay off the outstanding balance early, factor in the cost of the repayment penalty when comparing loans from different lenders.

How much am I likely to pay?

The cost of an ERC can either be determined by a set amount or by a percentage of the loan remaining on the property. This will be outlined in your mortgage agreement.

Are there mortgages without early repayment charges?

Yes, some mortgages will offer this level of flexibility, but it’s something you’ll need to look for before accepting a mortgage, and products like this could cost more in interest. You’re very unlikely to get a lender to agree to change this after the mortgage has begun.

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