Early Repayment Charge Calculator and Break-Even Analysis

How ERCs Are Structured

Fixed-rate products come with an ERC schedule, usually expressed as a percentage of the outstanding balance that tapers through the fixed period. A typical 5-year fix might have 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4, 1% in year 5. A 2-year fix might be 3% in year 1 and 2% in year 2. Check your mortgage offer document or latest annual statement for the exact schedule on your current product.

The ERC applies to the balance at the date of redemption, not the original loan. As you have paid down capital over the years, the ERC base shrinks. On a £200,000 original loan now at £170,000 balance with a 3% ERC, the penalty is £5,100 not £6,000.

Product type	Typical ERC year 1	Year 2	Year 3	Year 4	Year 5
2-year fixed	3%	2%	-	-	-
3-year fixed	3%	2%	1%	-	-
5-year fixed	5%	4%	3%	2%	1%
10-year fixed	6%	6%	5%	4%	3% (then tapers)
Tracker (most)	0%	0%	0%	0%	0%

The Break-Even Formula

ERC is worth paying if the interest saving over the remaining fixed period exceeds the ERC plus fees of the new product. Interest saving equals (current rate − new rate) × average balance over the remaining period × years remaining. Against this, cost equals ERC + new product fee + legal fees (if not free) + valuation fees (if not free) + your old lender's admin/exit fee.

A slightly more precise method: compute the total amount paid (principal + interest + fees) under scenario A (stay until end of fixed, then refinance) versus scenario B (pay ERC now, refinance immediately). If B is lower, the ERC is worth paying. For short remaining periods (under 9 months) the difference rarely exceeds the ERC, so staying is usually right.

The FOS has upheld complaints where advisers recommended ERC-triggering switches without documenting a break-even analysis. Under Consumer Duty rules, regulated advisers should run and evidence the comparison before advising a switch that incurs an ERC.

Worked Example 1: Large Rate Gap, Small Balance

Rachel took a 5-year fixed at 5.24% in June 2023 on a £95,000 balance (Cumberland BS, 85% LTV at the time). It is now April 2026, so she is in year 3 with a 3% ERC on the current £87,000 balance = £2,610. A new 2-year fix at 4.30% (65% LTV, because her property has risen to £185,000 giving 47% LTV) is available with a £999 fee.

Interest saved over remaining 27 months: (5.24% − 4.30%) × average balance roughly £82,000 × 2.25 years = £1,733. Cost: ERC £2,610 + fee £999 = £3,609. Interest saving does not cover the ERC and fee. Rachel should stay until year 5, then refinance normally.

But: if Rachel had been in year 2 with a 4% ERC of £3,480 on £87,000, and with 36 months remaining instead of 27, the interest saving would be (5.24% − 4.30%) × £80,000 × 3 = £2,256, still short of £4,479 cost. The earlier in the fix, the more years of saving you capture, but the larger the ERC. Break-even for most 5-year fixes falls at around year 3 to 4 when rate gaps are 0.75% to 1.0%.

Worked Example 2: Large Balance, Small Rate Gap

David has a £540,000 balance on a 5-year fix at 4.85% taken in April 2023, so in year 3 with 2% remaining ERC on current balance of £498,000 = £9,960. A new 4.10% 5-year fix is available with a £1,999 fee.

Option A: stay 24 months then refinance. Interest at 4.85% on average £480,000 over 2 years = £46,560. Option B: pay ERC now, refinance to 4.10% 5-year. Interest at 4.10% on average £480,000 over 2 years = £39,360. Interest saved: £7,200. Cost: ERC £9,960 + fee £1,999 = £11,959. Net cost of switching: £4,759.

But over the 5-year period of the new fix, the benefit extends. Years 3-5 of the new product are at 4.10% rather than whatever market rate will be at refinance. If we assume future 5-year rates in 2028 will be around 4.30% (rough consensus), David saves roughly 0.20% × £460,000 × 3 = £2,760 extra. Total 5-year comparison: £4,759 cost − £2,760 future saving = £1,999 net cost. David should stay. This is typical when the rate gap is under 1%.

Worked Example 3: Porting is Not Possible

Sarah is moving from Manchester to Bristol for work, upsizing from a £240,000 flat to a £425,000 house. Her current mortgage is a 5-year fix at 1.89% (taken in 2022, so year 4 with 2% ERC = £3,400 on £170,000 balance). She applied to port the mortgage to the new property, but her lender's porting requires the new property to satisfy current lending criteria, and the increased loan amount fails stress-testing. She must redeem the existing mortgage and take a new one.

The ERC is unavoidable here — there is no option A in which she pays no ERC. The calculator question is whether to take a new Halifax 2-year fix at 4.35% or a new Nationwide 5-year fix at 4.15%. The ERC is the same either way, so she is really comparing new products. This is common: people assume the ERC is the barrier, but if the move is fixed, the only live question is which new product minimises forward cost.

Porting rules are set by the lender and vary significantly. Nationwide is generous on porting; Halifax is stricter; some specialist lenders do not allow porting at all. Always ask the porting question 3 to 6 months before moving to understand whether the ERC is genuinely unavoidable.

Worked Example 4: Break-Even Quick Rule

A simple rule of thumb for busy borrowers: divide the ERC by the rate-saving multiplier, and compare to your remaining balance. Rate-saving multiplier is (old rate − new rate) / 100 × remaining years. If your balance > ERC / multiplier, the ERC is worth paying.

Example: £4,000 ERC, old rate 5.00%, new rate 4.30%, 2 years remaining on old fix. Multiplier = (5.00 − 4.30) / 100 × 2 = 0.014. Break-even balance = £4,000 / 0.014 = £285,714. If your balance is above £285,714, pay the ERC. Below, don't. This ignores fees but is useful as a first pass.

Alternative presentation: calculate the minimum rate gap needed for the ERC to pay back. Gap = ERC / (balance × years remaining). On £200,000 balance, £4,000 ERC, 2 years remaining: gap = £4,000 / (£200,000 × 2) = 1%. The new rate must be at least 1% below your current rate to break even.

Hidden Costs That Change the Answer

Break-even calculations often miss four costs. First, legal fees: free legals are standard on straightforward remortgages but are charged (£300 to £500) on transfers of equity or added borrowing. Second, valuation fees: most high-street lenders waive these for remortgages up to certain values, but specialist lenders or higher LTVs may charge £200 to £400.

Third, the old lender's redemption/exit admin fee, which is printed on your current mortgage offer and typically runs £50 to £300. Fourth, any benefit you lose by exiting, such as a cashback that was conditional on staying for the full fixed period. Some Halifax cashback products clawback the cashback on early redemption.

On the benefit side, a lower LTV tier at the new lender may give you access to rates not available in the old product ladder. If your property has risen in value significantly since you took the current fix, the new rate may be 0.25% to 0.50% lower than simply comparing like-for-like LTV products, improving the ERC break-even materially.

When Paying the ERC Is Usually Right

Three common patterns where paying the ERC wins. Pattern A: you fixed at a high rate in late 2022 or 2023 (5% or above), you have a large balance (£350,000+), and current 5-year fixed rates are below 4.20%. The arithmetic usually favours switching by year 2 or year 3 of the old fix. Pattern B: you are approaching the final 6 months of the fix, the ERC is 1% or lower, and current rates are 0.5% or more below. The small ERC pays back quickly.

Pattern C: an external event (divorce, death, serious illness, redundancy) requires a major restructuring that cannot wait. Emotional and practical urgency outweighs optimisation. Some lenders waive ERCs on hardship grounds if you can document the circumstances; ask before assuming the full ERC applies.

When paying the ERC is usually wrong: rate gap under 0.5%, less than 12 months remaining, balance under £100,000, or current product near the end of its tapering ERC schedule (year 5 of a 5-year fix where ERC is 1%). In these cases, sit tight, shop for a new product 6 months before the fix ends, and switch cleanly with no ERC.