# Mortgage overpayments and early repayment charges explained > Many people can pay extra off a mortgage, but a deal may charge for repaying too much too soon. This guide explains the right to repay early, how… - URL: https://centiview.com/uk-money/mortgage-overpayments-and-early-repayment-charges - Published: 2026-10-19T11:37:00.000Z - Figures checked: 2026-10-19 - Edited by David A - Topic: Mortgages (UK) - Publisher: Centiview (Persie Ltd, London) - General information only, not financial advice Many people can pay extra off a mortgage, but a deal may charge for repaying too much too soon. This guide explains the right to repay early, how early repayment charges are limited, and what to check. ## What an overpayment is and what the rules say An overpayment is any money you pay towards a mortgage on top of the required monthly amount, whether as a regular extra sum or a one-off lump sum. Paying extra reduces the balance that interest is charged on, so it can shorten the loan or lower later payments, depending on how the lender applies it. For most regulated home loans, the Financial Conduct Authority (FCA), the UK regulator for financial firms, requires lenders to give borrowers the right to repay all or part of the loan before the contract ends. If a borrower uses that right, the lender must reduce the total cost of credit by the interest and costs that would have applied to the period after repayment. That right does not mean repayment is always free. The same FCA rules say the right to repay early does not stop a lender from imposing an early repayment charge, often shortened to ERC. An ERC is a fee for paying off some or all of a mortgage during a set period, commonly the length of a fixed or discounted rate deal. Whether one applies therefore depends on your own contract. This guide is for people with a UK home mortgage; it does not cover unsecured loans or credit cards. ## How early repayment charges are limited The FCA does not set a fixed percentage for ERCs, but it does limit what they can be. Under its Mortgages and Home Finance: Conduct of Business rules (MCOB 12.3), a regulated mortgage contract must not impose an ERC unless the charge can be expressed as a cash value and is a reasonable pre-estimate of the costs the lender faces because the customer is repaying early. In plain terms, it should reflect the lender's real cost, not act as a penalty. A lender should not use a method called the Rule of 78, because the FCA says it effectively overstates the lender's cost. Lenders do have some freedom in how they calculate the charge. The FCA allows a lender to apply the same level of ERC to all similar contracts, for example everyone on a particular fixed rate, rather than working it out separately for each customer. The Financial Ombudsman Service, the free body that settles disputes between consumers and financial firms, confirms the charge can be set by product. The amount cannot be hidden: before you take out a mortgage, take a further advance, or switch all or part of the loan to a different interest rate, the maximum ERC must be shown in the relevant illustration. ## Overpayment allowances and the figures that matter Many fixed and discounted deals allow a certain amount of overpayment each year without an ERC. That allowance is a feature of each lender's product, not a figure set by the FCA, so it varies. It may be a percentage of the balance or a cash amount, and may be measured over a calendar year or from the start of the deal. A lender's terms may say the allowance does not cover repaying the whole loan, so a full early repayment could trigger the charge in full. Some products may not charge for extra payments at all; this depends on the deal. > **Key numbers** The FCA sets no fixed ERC percentage or overpayment allowance. The rules (MCOB 12.3, checked 19 October 2026) say an ERC must be a cash figure and a reasonable pre-estimate of the lender's costs, and the maximum must be shown in your illustration. Check your own offer for the allowance, the charge and the dates it applies. > **Who this affects** People with a regulated home mortgage in the UK, including those thinking of overpaying, moving house or remortgaging before a deal ends. Buy-to-let and other unregulated mortgages are treated differently, though the Ombudsman says similar principles apply. ## A worked example The numbers below are illustrative only and do not describe any real deal. Suppose a borrower has a £200,000 mortgage balance on a fixed rate, and the terms allow overpayments of up to 10% of the balance each year without a charge. Ten per cent of £200,000 is £20,000. If the borrower pays a £25,000 lump sum in that year, £20,000 falls within the allowance and £5,000 is above it (£25,000 minus £20,000). If the deal's ERC were 3% of the amount repaid above the allowance, the charge would be £150 (3% of £5,000, or 0.03 times £5,000). The same borrower repaying the whole £200,000 at that 3% rate would face a charge of £6,000 if the allowance did not apply to a full repayment. Real deals differ, so the contract is always the reference point. ## Common mistakes and when to look closer A common mistake is assuming an overpayment will be applied the way you expect. Lenders may use extra money to shorten the term or to reduce payments, so it can be worth asking in writing which applies. Another is overlooking the end date of the deal: an ERC usually applies only during a defined period, so the timing of a move or remortgage can change the cost. Moving home also raises the question of whether the deal can be ported, meaning transferred to a new property. If you think a charge is wrong, the Ombudsman says it judges complaints against the rules in force when the event happened, looking at evidence such as the mortgage offer, the loan terms, the lender's contact notes, the redemption statement and the calculation of the charge. A lender must be able to show how the charge was worked out and provide evidence that it was a reasonable pre-estimate. If a complaint is upheld, the remedy can include refunding the charge with interest and compensation for extra costs or distress. Where a charge was not a reasonable pre-estimate, the Ombudsman says it cannot be charged or simply replaced with a lower one. Those who struggle with payments can also contact MoneyHelper, the free government-backed money guidance service, for impartial help. FCA mortgage rules apply across the UK, including England, Scotland, Wales and Northern Ireland; this guide was checked in the 2026/27 tax year. ## Check before you act Rules, rates and lenders' terms change, so confirm the details on the official pages linked below and in your own mortgage documents before making decisions. ### Sources - [FCA Handbook, MCOB 12.3 Early repayment charges](https://handbook.fca.org.uk/handbook/mcob12/mcob12s3) - [FCA Handbook, MCOB 2A.4 Early repayment](https://handbook.fca.org.uk/handbook/mcob2a/mcob2as4) - [Financial Ombudsman Service, Early repayment charges](https://www.financial-ombudsman.org.uk/businesses/complaints-deal/mortgages/early-repayment-charges)